UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 


SCHOOL  OF  LAW 
LIBRARY 


LAW  LIBRARY 

UFORN1 
ES 

ESCROW 


Text  Book  on  Escrows 

[Book  2] 


Issued  by 

TITLE  INSURANCE  AND  TRUST  COMPANY 

Los  Angeles,  California 
1921 


Text  Book  on  Escrows 

[Book  2] 


This  book  follows 
'Introductory  Text  Book  on  Escrows." 


Issued  by 

TITLE  INSURANCE  AND  TRUST  COMPANY 

Los  Angeles,  California 
1921 


Introductory 


THIS  booklet  does  not  attempt  to  be  a  technical  trea- 
tise of  the  questions  herein  dealt  with,  but  is  written 
for  the  sole  use  and  benefit  of  the  employees  of  this 
Company,  that  they  may  have  a  clear  conception  of 
the  meaning  and  effect  of  such  matters  as  it  deals  with,  and 
to  act  as  a  foundation  to  be  builded  upon  by  future  study. 

It  should  be  carefully  borne  in  mind  that  it  is  not  the 
purpose  of  the  Escrow  Department  to  give  legal  advice. 
Customers  should  receive  that  from  their  own  attorneys. 

You  are  here  to  help  the  customers  draft  their  escrow 
instructions  in  such  manner  as  will  clearly  and  definitely 
carry  out  the  intent  of  the  parties,  and  to  endeavor  to  make 
clear  to  the  parties  what  they  are  signing;  and,  so  far  as 
possible,  to  be  certain  that  they  understand  their  deal.  We 
are  not  here  to  make  their  deals  for  them;  but  a  deal  that 
will  not  bear  a  clear  explanation  is  not  a  safe  one  to  handle. 
We  will  first  take  up  the  question  of  incumbrances: 

Any  right  to,  or  interest  in,  land,  or  lien  or  claim  upon  the 
same,  which  may  rest  in  or  be  held  by  a  third  person  to  the 
diminution  or  lessening  of  the  value  of  the  estate,  if  con- 
sistent with  the  passage  of  the  fee,  is  an  incumbrance.  In 
other  words,  if  the  third  person  had  any  right  or  title  in 
the  land,  it  would  not  be  considered  an  incumbrance,  but  a 
title  or  estate;  while  if  a  third  person  is  possessed  of  some 
interest  in  or  claim  upon  the  land  that  does  not  prevent  the 
passage  of  title  in  fee  simple,  the  right,  interest  or  claim  so 
held  is  an  incumbrance. 


^   Incumbrances  commonly  met  with  by  us  in  the  course  of 

u.    our  business  will  be  dealt  with  in  the  following  order: 

13 

1.  Taxes  and  Assessments 

2.  Mortgages 

3.  Trust  Deeds 

4.  The  Difference  Between  a  Trust  Deed  and  a  Mortgage 

5.  Covenants  and  Conditions 

6.  The  Difference  Between  a  Covenant  and  a  Condition  Sub- 
quent 

7.  Conditions,  Restrictions  and  Reservations  as  Met  with  in 
the  Usual  Course  of  Our  Business 

8.  Mechanic's  Liens 

9.  Judgments 

10.  Bankruptcy 

11.  Attachments  and  Executions 

After  which  we  will  treat  briefly  on: 

12.  Homesteads 

13.  Powers  of  Attorney 

14.  Acknowledgments 

15.  Torrens  System 

16.  Building  Loans 

17.  Usury 


?3|4o7 


Taxes  and  Assessments 

Taxes  and  certain  liens  imposed  by  the  Federal,  State, 
County,  Municipal  and  District  authorities  take  precedence 
over  the  liens  and  claims  of  individuals. 

Under  this  heading  we  have  the  taxes  imposed  by  such  polit- 
ical subdivisions: 

Horticultural  Liens 

Lighting  Liens 

Local  Assessments 

Opening  and  Widening  of  Streets 

Personal  Property  Tax  Liens 

Street  Assessments 

State  Tax  Liens 

Street  Bonds 

Tunnel  Liens 

Weed  Liens,  etc. 

The  first  incumbrance  to  be  considered  as  to  any  title  to 
real  property  is  that  of  taxes  levied  for  the  purpose  of  main- 
taining the  government.  In  this  state  the  taxes  were  form- 
erly divided  into  state,  county  and  city  taxes.  At  the  gen- 
eral election  of  November,  1910  (Amendment  No.l),  the 
state  constitution  was  changed  to  permit  of  the  segregation 
of  state  and  local  taxation. 

The  state  derives  its  revenue  principally  from  a  percentage 
of  the  gross  receipts  of  public  utility  corporations,  insur- 
ance companies  and  banks,  and  by  assessment  of  franchises 
of  all  corporations  organized  for  profit. 

The  first  corporation  franchise  tax  act  was  passed  in  1911, 
and  has  since  been  amended  several  times. 

At  the  present  time  the  state  taxes  concern  us  in  the  exam- 
ination of  titles  only  when  the  property  was  owned  by  a 
corporation  on  the  first  Monday  in  March,  when  the  direct 
state  taxes  on  public  utility  corporations,  banks,  and  insur- 
ance companies  and  the  franchise  tax  on  other  corporations 
organized  for  profit  attaches.  And  on  the  first  day  of  Janu- 


ary  of  any  year,  since  January  1,  1918,  on  which  date  the 
license  tax  becomes  a  lien  on  the  property  owned  by  a 
corporation  organized  for  profit — except  those  which  pay 
direct  taxes  to  the  state. 

Public  service  corporations  are  taxed  on  all  their  posses- 
sions (except  non-operative  property)  for  state  purposes 
alone.  Other  commercial  corporations,  except  banks  and 
insurance  companies,  pay  taxes  to  the  state  on  franchises 
only,  and1  on  their  other  property  to  county  and  city  as 
formerly. 

The  corporation  franchise  tax  is  one  imposed  upon  a  corpo- 
ration, taxing  its  right  to  do  business  as  a  corporation. 
Such  taxes  are  payable  to  the  State  Treasurer  in  two  install- 
ments. The  first  installment  on  the  first  Monday  in  July, 
becoming  delinquent  six  Mondays  later,  with  15%  penalty 
added  upon  delinquency. 

The  second  installment  is  delinquent  on  the  first  Monday  in 
February,  and  5%  penalty  attaches  on  all  unpaid  amounts. 
Certain  penalties  for  the  non-payment  of  such  corporation 
taxes  are  such  as  forfeitures,  etc.,  and  certain  provisions  are 
made  as  in  some  of  the  acts  for  reinstating  and  reviving  the 
corporation,  but  these  need  not  be  dwelt  upon  in  this  general 
statement. 

License  taxes  do  not  apply  to  corporations  in  the  exempt 
list,  which  include  those  organized  for  educational,  relig- 
ious, scientific  and  charitable  purposes — in  other  words, 
those  not  organized  or  conducted  for  profit.  Nor  to  public 
utility  corporations  other  than  water  companies,  banks;  nor 
insurance  companies. 

The  state  taxes  are  payable  in  Sacramento,  and  therefore  it 
is  generally  necessary  to  secure  either  a  statement  from  the 
proper  authorities  in  Sacramento  or  have  the  receipts  sub- 
mitted by  the  corporation  at  the  time  of  taking  the  escrow, 
where  such  corporation  taxes  are  a  lien. 


County  taxes  are  payable  in  two  installments,  both  payable 
on  the  third  Monday  in  October  of  each  year,  the  first  half 
(which  includes  all  personal  property  taxes)  becoming 
delinquent  the  first  Monday  of  December,  at  5  p.m.,  with 
penalty  added  for  nonpayment. 


The  second  half  is  delinquent  on  the  last  Monday  in  April, 
at  5  p.m.,  with  5%  added  to  all  amounts  unpaid.  The 
delinquent  list  is  published  annually  by  the  Tax  Collector 
on  or  before  June  8th,  for  three  weeks,  after  which  all 
property  in  delinquency  is  declared  sold  to  the  State  of 
California,  early  in  July,  and  is  so  marked  on  the  rolls. 

Penalties  and  interest  at  1%  are  added  after  the  sale,  the 
property  being  assessed  as  usual  thereafter  for  four  years. 
Five  years  after  the  original  sale  to  the  State,  the  property, 
after  legal  advertisement,  is  offered  at  auction,  unless  it  has 
been  previously  redeemed  prior  to  or  upon  the  day  of  sale 
upon  the  Auditor's  estimate,  and  is  so  struck  off  to  pur- 
chasers, who  are  allowed  thirty  days'  exclusive  right  of 
paying  and  redeeming  all  back  taxes  and  taking  a  deed. 
The  tax  collector  must  publish  the  delinquent  list  on  or 
before  June  8th  each  year,  and  the  list  of  property  sold  to 
the  State  for  five  years  previous  and  unredeemed. 

The  same  procedure  has  been  officially  adopted  by  the  City 
of  Los  Angeles  as  to  its  taxes,  which  are  added  in  with  the 
County  taxes,  and  both  are  then  collected  as  one  amount. 

Personal  property  taxes  of  persons  also  assessed  for  real 
estate  can  be  charged  when  assessed  against  any  parcel  of 
real  property  owned  by  such  persons,  in  which  case  realty 
taxes  will  not  be  accepted  unless  the  personal  property  tax 
is  paid  also.  This  is  of  importance  to  purchasers  who 
assume  the  taxes  on  land  acquired  at  a  time  when  the  tax 
rolls  are  not  accessible,  as  personal  property  taxes  of  the 
party  who  is  the  owner  of  the  property  on  the  first  Monday 
in  March  may  be  assessed  against  such  real  property  and 
must  be  paid  before  the  real  property  tax  can  be  credited. 
There  are  about  forty  incorporated  cities  in  Los  Angeles 
County  which  levy  their  own  municipal  taxes,  and  some  of 


these  cities  have  arranged  with  the  County  Tax  Collector 
for  inclusion  and  collection  of  same  in  the  county  tax  bill. 
For  general  information,  it  may  be  well  to  know  that  certain 
property  belonging  to  religious  corporations  and  those  not 
run  for  profit  are  exempt  from  taxation,  and  also  certain 
exemptions  have  been  granted  on  account  of  military  serv- 
ice, such  as  an  exemption  of  $1000  on  account  of  military 
service  allowed  by  the  state  constitution  after  honorable  dis- 
charge for  those  owning  less  than  $5000  of  property,  and 
a  resident  of  this  State,  and  an  extension  of  such  exemption 
to  the  widow  or  widowed  mother  of  such  honorably  dis- 
charged soldier. 

These,  however,  are  exceptions  and  are  only  touched  upon 
here  for  general  information. 

Property  owned  by  deceased  persons  is  subject  to  the  lien 
of  an  inheritance  tax  to  the  State,  and  an  estate  tax  to  the 
United  States,  when  the  amount  falls  under  the  provision 
of  the  laws  governing  the  same. 


Mortgages 

A  Mortgage  is  an  instrument  executed  by  owners  of  property 
or  those  claiming  an  interest  therein,  in  favor  of  the  lender, 
and  is  generally  given  to  secure  the  payment  of  a  debt 
evidenced  by  a  note. 

It  is  not  necessary  to  treat  of  the  terms  and  conditions  of 
a  mortgage,  as  you  can  best  obtain  them  by  reading  carefully 
any  of  the  accepted  forms  of  mortgage  now  in  use  in  this 
district. 

In  escrow,  you  are  interested  in  the  handling  of  a  mortgage 
only  when  the  loan  is  made,  or  considering  the  same  when 
it  is  already  of  record,  or  how  to  cause  same  to  be  satisfied 
of  record,  or  the  course  to  pursue  in  causing  the  lien  of 
the  mortgage  to  be  released  when  action  has  been  taken 
to  foreclose. 

So  far  as  the  loan  secured  by  a  mortgage  is  concerned,  the 
manner  of  treatment  in  escrow  is  similar  to  that  of  a  grant 
deed.  The  mortgagors,  or  parties  executing  the  mortgage, 
deposit  the  mortgage  in  escrow  and  authorize  its  delivery 
upon  the  collection  for  the  account  of  the  mortgagors 
of  a  specified  consideration.  That  consideration  must  be  a 
good  and  sufficient  one,  and  as  escrow  holder,  for  the 
protection  of  yourself  and  the  customer,  it  is  necessary  to 
consider  whether  the  mortgage  and  the  terms  of  the  escrow 
comply  with  the  requirements  of  the  usury  law  and  do 
not  violate  the  same. 

In  this  booklet  the  usury  law  is  treated  separately,  and 
it  is,  therefore,  not  necessary  to  refer  more  specifically  to 
its  requirements  at- this  place. 

A  mortgage  becomes  a  lien  against  real  property  from  the 
date  of  its  delivery,  and  like  all  other  such  instruments, 
must  be  recorded  to  give  notice  to  the  world. 
When  a  note,  secured  by  a  mortgage  on  real  property,  is 
not  paid  according  to  the  terms  and  conditions  thereof, 
the  holder  of  the  note  and  mortgage  has  the  right  to  bring 
an  action  to  collect  the  amount  of  the  debt.  The  pro- 


ceeding  is  generally  referred  to  as  an  action  to  foreclose 
a  mortgage. 

When  an  attorney  for  a  mortgagee  is  about  to  begin  his 
action  for  foreclosure,  it  is  customary  that  he  secure  from 
the  title  company  a  "Guarantee  for  foreclosure  purposes," 
it  being  necessary  in  such  action  to  make  parties  defendant 
all  parties  who  appear  of  record  to  have  any  interest  in 
such  property  adverse  to  that  of  the  mortgagee. 

When  such  order  is  received  by  the  title  company,  the 
condition  of  the  title  of  record  is  ascertained  as  of  the 
date  of  the  mortgage,  and  an  examination  of  the  records 
is  then  made  from  that  date  to  the  date  of  the  issuance 
of  the  "Guarantee  for  foreclosure  purposes." 

Reference  is  made  to  every  instrument  of  record  affecting 
the  property  in  question  during  such  intervening  time. 

All  deeds  are  examined  carefully  to  ascertain  if  there 
be  any  in  which  the  grantee  assumed  and  agreed  to  pay  the 
indebtedness. 

A  careful  search  is  made  to  ascertain  the  names  of  the  parties 
and  the  nature  of  any  claims,  interest  or  liens  that  any 
such  parties  may  have  in  the  title  to  the  property  under 
search. 

It  is  then  customary  for  the  attorney  for  the  mortgagee, 
in  filing  his  complaint,  to  make  parties  defendant  all  parties 
who  seem  to  have  acquired  any  such  interest,  claim  or  lien 
in  the  property  in  question,  as  shown  by  such  Guarantee. 
It  is  particularly  necessary  that  all  parties  who  are  shown 
to  have  had  claims  or  liens  be  made  defendants  in  order 
to  obtain  judgment  against  them,  and  to  cut  out  such 
claims  or  interest  which  they  may  have,  in  case  the  action 
goes  to  final  judgment,  and  a  Sheriff's  deed  is  subsequently 
issued. 

It  is  customary  also  to  join  all  other  parties  mentioned 
in  the  foreclosure  Guarantee,  as  having  come  into  the  title 
during  the  intervening  time,  that  their  rights  may  be  deter- 
mined and  judgment  obtained  against  them,  and  any  such 
interest  as  they  may  have  in  the  property. 


If  a  grantee  has  assumed  and  agreed  to  pay  the  obligation, 
a  deficiency  judgment  may  rest  against  such  grantee,  together 
with  the  original  makers  of  the  note. 

If  a  grantee  in  the  chain  of  title,  who  has  not  assumed 
the  debt  secured  by  the  mortgage,  has  afterward,  and  prior 
to  the  commencement  of  the  action,  deeded  away  his  interest, 
it  is  not  necessary  to  make  him  a  party  defendant,  except 
as  a  precautionary  measure,  for  if  the  purported  conveyance 
from  him  were  a  forgery  he  would  not  in  reality  be  out 
of  the  title,  but  by  making  him  a  party  defendant,  judgment 
can  be  obtained  against  him. 

After  receiving  the  "Guarantee  for  forclosure  purposes," 
the  attorney  for  the  mortgagee  prepares  and  files  the  com- 
plaint, thereafter  filing  lis  pendens,  or  notice  of  the  pendency 
of  the  action.  This  lis  pendens  is  recorded  in  the  office  of 
the  County  Recorder,  and  is  notice  to  everyone  that  the 
action  has  been  filed,  and  anyone  afterward  acquiring 
interest  in  said  property  takes  the  same  subject  to  the  action 
and  its  effect,  and  does  not  need  to  be  made  a  party 
defendant. 

After  such  action  has  been  commenced,  and  at  some  stage 
prior  to  the  time  when  a  Sheriff's  deed  would  be  issued, 
arrangements  are  frequently  made  to  pay  off  the  incum- 
brance,  securing  a  satisfaction  of  the  debt,  and  having 
the  action  dismissed. 

If  it  is  desired  to  pay  off  the  mortgage  after  suit  has  been 
filed,  and  before  judgment  is  obtained,  it  requires  first 
the  release  of  the  mortgage,  and  second  a  dismissal  of  the 
action. 

If  the  mortgage  is  not  paid  off  at  this  date,  the  case  is  set 
for  trial,  and  all  parties  shown  in  the  chain  of  title  above 
referred  to  are  made  parties  defendant  and  served  by 
due  process  of  law,  that  they  will  have  their  day  in  court 
at  the  hearing. 

Assuming  that  a  judgment  is  given  in  favor  of  the  plain- 
tiff, such  judgment  is  entered  for  the  amount  of  the  debt 
so  proved,  plus  such  costs  and  attorney's  fees  as  may 
be  allowed  in  court. 

10 


Should  the  escrow  instructions  require  the  payment  of  the 
debt  at  this  stage,  it  is  necessary  to  secure  a  satisfaction 
of  the  judgment,  together  with  proper  instructions  as  to  the 
amount  to  be  collected  therefor.  The  satisfaction  of 
judgment  will  have  to  be  furnished  by  the  attorney  for 
the  judgment  creditor,  and  the  attorney  is  entitled  to  receive 
consideration  therefor  if  he  so  elects. 

If  the  debt  has  not  been  paid  at  this  stage,  a  judgment 
having  been  entered,  the  Sheriff,  or  a  commissioner 
appointed  by  the  court  for  the  purpose,  will  be  authorized 
and  directed  by  the  court  to  advertise  the  property  for  sale 
at  public  auction,  and  the  same  will  thereupon  at  the 
proper  time  and  place  be  sold  to  the  highest  bidder. 

The  owner  of  the  property,  immediately  prior  to  the  fore- 
closure, may  redeem  from  this  Sheriff's  sale  at  any  time 
within  twelve  months  from  the  date  of  the  issuance  of  the 
Certificate  of  Sale  by  paying  the  amount  of  the  sale  price, 
together  with  interest  at  the  rate  of  12 %  per  annum.  Or 
any  subsequent  lien  claimant  may  make  redemption  from 
the  Sheriff's  Certificate  of  Sale,  in  which  case  the  amount 
due  him  is  added  to  the  amount  required  to  redeem,  and 
he  holds  the  Sheriff's  Certificate  of  Sale  subject  to  the  right 
of  other  lien  claimants  or  the  owner  to  redeem  from  him 
in  like  manner. 

Should  the  owner  redeem,  he  takes  title  subject  to  all  liens 
except  the  lien  of  the  original  mortgage  foreclosed,  but 
should  redemption  be  made  by  any  lien  claimant  other  than 
the  owner,  his  debt  is  added  to  the  amount  of  the  original 
Sheriff's  certificate,  and  all  previous  rights  of  those  who 
had  redeemed. 

After  each  redemptioner  has  exercised  his  right,  the  next 
redemptioner  has  automatically  an  extension  of  time  of 
sixty  days  after  such  previous  redemption  in  which  to 
exercise  his  right  of  redemption. 

Should  it  be  desired  to  pay  off  the  debt  occasioned  by 
the  mortgage  foreclosure,  at  any  time  after  the  issuance 
of  the  Sheriff's  certificate,  and  prior  to  the  issuance  of 

11 


the  Sheriff's  deed,  instructions  should  be  taken  from  the 
owner  of  the  property  which  will  authorize  us  to  pay 
through  the  Sheriff's  office,  or  through  the  commissioner, 
if  it  be  a  commissioner's  sale,  such  an  amount  as  may  be 
required  by  him  to  affect  this  redemption. 

A  statement  must  always  be  had  from  such  Sheriff  or 
commissioner  before  attempting  to  make  the  redemption, 
as  the  one  holding  the  Sheriff's  Certificate  of  Sale  may 
have  paid  taxes  and  other  incumbrances  which  the  law 
permits  to  be  added  to  the  amount  necessary  to  be  paid  for 
redemption,  and  also  there  are  the  Sheriff's  fees  to  be 
provided  for. 

To  use  every  care  in  closing  such  an  escrow,  at  this  stage 
of  the  proceedings,  it  would  be  necessary  to  ascertain  from 
the  Sheriff's  office  on  the  day  prior  to  the  recording,  the 
exact  amount  that  would  be  required  on  the  next  day  for 
a  redemption  of  the  property.  On  the  day  set  for  closing 
the  escrow,  the  Sheriff  should  be  paid  in  full  from  the 
money  in  escrow,  and  a  Certificate  of  Redemption  taken  from 
him,  which  Certificate  of  Redemption  will  be  filed  in  the 
office  of  the  County  Recorder,  together  with  the  other 
instruments  in  the  escrow. 

The  holder  of  the  Certificate  of  Sale,  will  thereafter  present 
the  same  at  the  Sheriff's  office  and  in  return  for  the  surren- 
der of  the  certificate,  the  Sheriff  will  return  to  him  the 
amount  of  money  which  he  has  collected  for  his  account. 
Our  code  provides  other  means  by  which  a  redemption 
may  be  effected — by  redemption  directly  from  the  holder 
of  the  Certificate  of  Sale.  This  is  generally  done  in  such 
cases  where  a  compromise  is  effected;  that  is,  in  any  case 
where  the  amount  to  be  accepted  by  the  holder  is  less  than 
the  amount  shown  to  be  due  by  the  records  in  the  office 
of  the  Sheriff  or  commissioner. 

In  such  a  case,  it  will  be  less  complicated  to  accept  from 
the  holder  of  the  certificate  such  an  individual  Certificate 
of  Redemption,  together,  with  his  instructions,  as  to  the 
amount  to  be  collected  therefor. 

12 


This  individual  Certificate  of  Redemption,  when  duly 
recorded  in  the  Recorder's  office,  will  effect  redemption  as 
completely  as  would  a  Certificate  of  Redemption  from  the 
Sheriff,  and  is  likewise  notice  to  the  Sheriff  that  such 
redemption  has  been  made. 

If  no  previous  redemption  has  been  made,  the  owner  must 
redeem  within  one  year  or  a  Sheriff's  deed  will  be  issued 
to  the  purchaser  holding  the  Sheriff's  Certificate  of  Sale. 
In  no  instance  has  the  owner  in  excess  of  one  year  in  which 
to  make  such  redemption. 

Should  the  period  of  redemption  elapse  without  any  redemp- 
tion having  been  made,  the  holder  then  presents  his  Cer- 
tificate of  Sale  to  the  Sheriff  and  demands  and  receives 
the  Sheriff's  deed  to  the  property.  This  deed  should  then 
be  recorded  in  the  office  of  the  County  Recorder,  and  the 
grantee  in  such  deed  will,  if  the  proceedings  leading  up 
to  the  Sheriff's  Sale  have  in  all  respects  been  regular, 
thereafter  be  the  holder  of  the  rights  and  title  in  the  prop- 
erty that  the  original  mortgagor  had,  free  from  all  claims, 
rights  and  liens  of  those  against  whom  he  obtained  judgment 
in  his  suit  for  foreclosure. 


13 


Trust  Deeds 

A  Trust  Deed,  like  a  Mortgage,  is  generally  given  to  secure 
a  debt,  evidenced  by  a  note  or  notes.  The  parties  thereto 
are  usually  designated  as  the  Trustor,  the  Trustee,  and  the 
Beneficiary. 

To  secure  such  indebtedness,  the  Trustor  grants  and  conveys 
to  a  Trustee  in  trust,  with  power  of  sale,  the  property 
in  the  instrument  described. 

1st:     To  secure  the  payment  of  the  indebtedness. 

2nd:  The  payment  of  all  other  sums  therein,  becoming  due  or  pay- 
able under  the  provisions  of  the  Trust  Deed,  whether  to  the 
Trustee  or  to  the  Beneficiary. 

3rd:  The  payment  of  such  additional  sums,  not  to  exceed  a  sum 
specifically  set  out  in  the  Trust  Deed,  with  interest  thereon 
as  may  thereafter  be  borrowed  by  the  original  Trustor,  and 
evidenced  by  another  note  or  notes,  specifically  stating  that  they 
are  secured  by  the  same  Trust  Deed. 

4th:  The  performance  of  all  other  obligations  and  agreements  men- 
tioned in  the  Trust  Deed,  such  as  the  payment  of  all  taxes 
during  the  life  of  the  trust,  and  before  delinquency,  and  any 
money  necessary  to  be  expended  or  advanced  by  the  Beneficiary 
and  Trustee  to  protect  the  lien  of  the  Trust  Deed.  The  Trust 
Deed  also,  by  its  terms,  usually  provides  for  keeping  the  prop- 
erty free  from  all  liens  or  adverse  claims  other  than  those 
agreed  upon  to  be  allowed  to  remain  prior  to  the  Trust  Deed, 
and  provides  for  fire  insurance,  and  the  terms  and  conditions 
thereof,  and  for  applying  the  payments  in  case  of  loss  by  fire. 

It  usually  also  provides  that  the  Trustee  or  Beneficiary 
may  take  such  action  as  is  necessary  to  protect  the  Trustee 
and  Beneficiary's  interest  therein  against  any  claims  that 
may  be  made  adverse  to  the  Trust  Deed;  and  provides  for 
the  upkeep  and  preservation  of  the  property;  and  for 
the  payment,  with  interest,  of  any  sums  advanced  to  pro- 
tect the  Trust  Deed;  and  provides  for  a  reconveyance  when 
the  debt  and  all  other  obligations  imposed  by  the  Trust 
Deed  are  settled. 

Such  Trust  Deeds  usually  provide  also  in  specific  terms  for 
a  declaration  of  default  in  case  of  a  breach  thereunder  on 
the  part  of  the  Trustor  or  successors,  by  stating  the  con- 

14 


ditions  under  which  the  Beneficiary  may  declare  default, 
and  by  providing  for  a  written  declaration  of  default  and  de- 
mand for  sale,  which  notice  shall  be  served  on  the  Trustee 
and  shall  thereafter  be  recorded  in  the  office  of  the  County 
Recorder  in  the  county  wherein  the  property  is  situated. 

In  any  event,  our  present  law  calls  for  the  recording  of 
such  a  declaration  of  default,  and  after  three  months  shall 
have  elapsed  following  the  recordation  of  such  notice 
of  default,  the  Trustee  shall  sell  the  property  in  such  parcels 
and  at  such  time  and  place  as  the  Trustee  shall  deem  best 
to  accomplish  the  purpose  of  the  Trust  Deed,  after  having 
advertised  same  for  the  time  required  by  law  (which 
time  for  advertising  under  the  Trust  Law  is  at  least  three 
weeks)  in  a  newspaper  of  general  circulation  in  the  county 
in  which  the  property,  or  some  portion  thereof,  is  located. 

The  sale  may  be  postponed  from  time  to  time  by  duly 
publishing  notice  of  such  postponement  in  the  same  news- 
paper in  which  the  original  notice  of  sale  was  published, 
or,  if  provided  in  the  Trust  Deed,  by  giving  public  notice 
thereof  at  the  time  and  place  of  the  advertised  sale. 

At  such  sale,  any  person  or  corporation  may  bid,  and  the 
property  shall  then  be  sold  in  due  form  to  the  highest 
bidder  for  cash  at  public  auction.  After  the  sale,  and  the 
purchase  price  is  paid,  the  Trustee  executes  a  deed  without 
covenant  or  warranty  to  the  successful  bidder. 

From  the  proceeds  of  such  sale,  the  accrued  expenses  and 
fees  are  deducted  from  the  purchase  price  and  the  balance 
applied  on  the  amounts  due  the  Beneficiary,  and  the  bal- 
ance then  remaining  in  the  hands  of  the  trustee,  if  any,  is 
paid  to  the  person  or  persons  legally  entitled  thereto. 

Trust  Deeds  usually  also  provide  that  there  may  be  partial 
releases  executed  of  any  portion  or  portions  of  the  property 
covered  by  the  Trust  Deed,  upon  written  request  made 
by  the  Beneficiary  to  the  Trustee,  and  any  such  amounts 
paid  for  partial  reconveyance  are  credited  on  the  original 
debt. 

15 


Trust  Deeds  also  frequently  provide  that  before  recordation, 
they  must  be  accepted  by  the  Trustee  in  writing. 

After  a  property  is  sold  by  the  Trustee  in  satisfaction  of 
a  debt,  in  the  form  and  manner  described  by  the  instrument, 
there  is  no  right  of  redemption,  and  any  title  conveyed 
by  the  Trustor  to  the  purchaser  under  such  sale  vests  such 
rights  in  the  grantee  in  such  deed  immediately  upon  the 
issuance  and  delivery  thereof. 

In  the  event  the  sale  fails  to  bring  enough  to  satisfy  the 
debt,  the  holder  of  the  note  may  bring  an  action  to  recover 
the  deficiency  and  obtain  judgment  against  the  makers 
of  the  note. 


16 


The  Difference  Between  a  Trust  Deed 
and  a  Mortgage 

You  will  notice  that  when  there  has  been  default  in  the 
payment  of  either  the  principal  or  the  interest  under  a 
note,  secured  by  a  mortgage,  it  is  necessary  to  bring  suit 
on  the  note,  and,  after  joining  in  the  action  all  parties 
necessary  to  be  made  parties  defendant,  to  get  judgment  and 
thereafter  to  have  a  Sheriff's  or  Commissioner's  sale  of  the 
property  covered  by  the  mortgage  to  satisfy  the  debt. 

And  thereafter  the  owner  of  the  property,  his  successors 
in  interest,  or  those  entitled  to  make  redemption,  may  redeem 
from  such  Sheriff's  sale  at  any  time  within  one  year,  or 
within  the  time  fixed  by  statute. 

Under  a  Trust  Deed  it  will  be  seen  that  in  case  of  default, 
notice  of  such  default  must  be  given  as  in  the  manner 
provided  for  a  period  of  not  less  than  ninety  days,  and  a 
notice  of  sale  published  for  the  period  prescribed,  after 
which  the  Trustee  may  sell  the  property  in  satisfaction  of 
the  debt,  and  immediately  upon  said  sale,  all  of  the  title 
held  by  the  Trustee  passes  upon  the  delivery  of  the  deed 
from  the  Trustee,  and  without  the  right  of  redemption. 

The  necessary  time  consumed  in  foreclosing  the  mortgage 
and  before  the  expiration  of  the  final  time  for  redemption, 
is,  in  common  practice,  seldom  less  than  one  and  a  half 
years  from  the  time  of  the  beginning  of  the  action. 

The  time  of  the  passing  of  title  under  a  Trustee's  Sale 
is  usually  less  than  five  months.  For  this  reason,  prin- 
cipally, Trust  Deeds  are  selected  where  the  loan  is  on 
a  basis  greater  than  fifty  per  cent  of  the  value  of  the 
property,  or  where  the  incumbrance  is  second  and  subject 
to  a  prior  incumbrance. 


17 


Covenants  and  Conditions 

The  vendor  and  purchaser  of  property  have  the  right  to 
bestow  such  benefits  and  impose  such  burdens  for  their 
benefit,  as  they  may  see  fit,  unless  some  wrong  or  injury 
thereby  results  to  a  third  person,  or  unless  against  public 
policy.  Along  this  line  we  have  to  treat  with  covenants, 
conditions,  restrictions  and  reservations  met  with  in  the 
issuance  of  Guarantees  of  Title.  Of  these  you  should 
have  a  clear  conception  as  to  their  meaning  and  effect, 
to  be  the  better  able  to  appreciate  the  necessity  of  having 
the  parties  acquaint  themselves  fully  with  each  particular 
set  of  conditions  met  with  in  the  chain  of  title;  to  consider 
them  carefully  and  for  themselves  determine  whether  the 
conditions  are  such  as  to  interfere  with  their  contemplated 
use  of  the  property,  or  whether  they  impose  such  a  burden 
on  the  property  as  to  make  them  undesirable. 

Generally  speaking,  the  restrictions  imposed  upon  the  use  of 
property  fall  under  two  heads — Covenants  and  Conditions. 
A  Covenant  is  an  agreement  to  do  or  not  to  do  a  certain 
thing.  Every  Covenant  contained  in  a  grant  of  estate  in  real 
property,  which  is  made  for  the  direct  benefit  of  the  prop- 
erty, runs  with  the  land. 

To  create  a  Covenant  running  with  the  land,  there  must 
be  privity  of  estate,  or  mutuality  of  benefit;  parties  must 
be  in  such  relation  to  each  other  that  each  is  under  some 
obligation  to  the  other,  or  each  is  to  receive  some  benefit 
from  the  Covenant. 

A  Condition  is  a  restriction  or  limitation  imposed  upon 
the  use  of  the  land,  or  an  obligation  to  perform  or  not  to 
perform  some  act. 

Conditions  are  either  Conditions  Precedent  or  Conditions 
Subsequent. 

A  Condition  Precedent  is  one  which  is  to  be  performed 
before  some  right  depending  thereon  accrues,  or  some  act 
depending  thereon  is  performed. 

18 


To  establish  a  record  of  the  fact  that  the  title  is  actually 
vested  in  the  grantee  upon  the  performance  of  any  Con- 
dition Precedent,  a  Quit  Claim  Deed  from  the  grantor  impos- 
ing the  condition,  his  heirs  or  assigns,  should  be  recorded, 
that  any  subsequent  person  dealing  with  the  chain  of  title 
would  not  be  put  on  inquiry  to  ascertain  if  the  Condition 
Precedent  has  actually  been  performed. 

A  Condition  Subsequent  is  a  grant  upon  condition  that  if 
certain  things  are  done  or  are  not  done,  the  grantor  has  a 
reversionary  right  and  may  enforce  forfeiture. 


19 


The  Difference  Between  a  Covenant  and  a 
Condition  Subsequent 

In  the  case  of  a  Covenant,  the  grantor  does  not  reserve  any 
interest  or  title,  but  relies  upon  the  agreement.  In  the  case 
of  the  Condition  Subsequent,  he  retains  an  estate  to  himself, 
which  may,  under  certain  conditions,  ripen  into  a  full  estate 
by  forfeiture. 

A  Covenant  directly  and  fundamentally  concerning  land  and 
its  use  is  enforceable  in  equity,  irrespective  of  whether  the 
Covenant  runs  with  the  land  or  not.  Under  this  head  would 
come  ordinary  building  restrictions  with  which  we  are  famil- 
iar, or  prohibition  against  business,  or  against  the  sale  of 
intoxicating  liquors,  or  against  certain  obnoxious  trades. 

Such  restrictions  are  sometimes  enforceable  by  injunction, 
irrespective  of  privity  of  estate  or  the  nature  of  the  tenure. 
It  is  not  necessary  to  give  notice  to  a  subsequent  grantee  of 
any  such  Covenant  or  Condition  Subsequent,  that  reference 
be  made  to  the  same  in  the  deed  to  him,  although  a  care- 
fully drawn  deed  would  so  refer.  If  found  in  the  chain  of 
title,  it  is  as  effective  against  him  or  for  him  as  if  it  appeared 
in  his  own  deed.  However,  the  language  should  be  clearly 
expressed  to  produce  this  result,  or  the  surounding  circum- 
stances must  point  to  the  intention. 

It  is  against  public  policy  that  land  be  unnecessarily 
restricted.  When  a  grantor  has  no  further  interest  in  the 
estate,  he  can  not  be  further  concerned  with  its  subsequent 
use,  unless  the  restrictions  are  such  as  to  inure  to  the  benefit 
of  the  adjoining  lands. 

A  Covenant  made  by  the  owner  of  land  with  the  owner  of 
other  land,  to  do  or  to  refrain  from  doing  some  act  on  his 
own  land,  the  doing  of  which,  or  the  refraining  from  doing, 
is  expressly  for  the  benefit  of  the  land  of  the  Covenantee,  and 
which  is  made  by  the  Covenantor,  runs  with  both  such 
parcels  of  land. 

20 


It  is  difficult  in  many  cases  to  distinguish  between  a  personal 
Covenant  and  a  Covenant  which  binds  the  land.  The  inten- 
tion must  be  most  clearly  expressed. 

The  Courts  are  adverse  to  declaring  forfeitures,  and  Condi- 
tions are  construed  strictly  against  the  parties  for  whose 
benefit  they  are  created. 

Language  which  merely  describes  the  use  to  which  property 
is  to  be  devoted  does  not  necessarily  create  a  Condition — 
such  as  "to  be  used  for  church  purposes" — unless  this  be 
made  clearly  upon  the  condition  that  the  property  is  to  be 
used  for  such  purposes  only,  the  land  shall  revert  to  the 
grantor,  his  heirs  or  assigns. 

Any  Covenant  for  the  forfeiture  of  title  in  satisfaction  of  a 
debt  is  void. 

The  grant  of  fee  on  condition,  even  though  it  will  leave  an 
estate  in  the  grantor,  does  not  thereby  prevent  alienation  of 
the  property. 

Where  a  Condition  Subsequent  is  imposed,  the  title  vests  at 
once  in  the  grantee,  but  is  subject  to  liability  of  being 
divested  upon  breach  of  the  Condition. 

There  are  certain  Conditions  that  are  void  in  themselves, 
such  as: 

1st:  Those  that  impose  restrictions  upon  marriage,  except  of  a 
minor;  but  this  does  not  affect  the  Condition  when  the  inten- 
tion is  not  to  forbid  marriage,  but  only  to  give  the  use  of  the 
property  until  marriage. 

2nd:  Conditions  restraining  alienation  of  the  property,  when  repug- 
nant to  estate  granted.  Thus  a  condition  that  the  grantee  shall 
not  sell  without  the  consent  of  the  grantor,  is  void;  a  Condi- 
tion that  the  grantee  shall  sell  to  the  grantor  only,  or  at  a 
stipulated  price,  is  void. 

3rd:  A  Condition  Subsequent  which  is  impossible  of  performance  is 
void,  and  the  title  passes  free  of  the  Condition,  but  not  neces- 
sarily so  when  it  is  a  Condition  Precedent. 

21 


4th:  Where  a  Condition  Precedent  is  impossible  from  the  beginning, 
and  for  any  reason  incapable  of  being  performed,  no  title 
passes. 

•~>th:  If  a  Condition  Precedent  requires  the  performance  of  a  wrong- 
ful  act,  the  deed  is  void  and  passes  no  title.  If  it  requires  the 
performance  of  an  act,  not  wrong  in  itself,  but  otherwise  un- 
lawful, the  deed  passes  the  title  free  of  the  Condition. 

These,  however,  are  purely  legal  and  technical  points,  and 
are  not  properly  within  your  province  to  determine,  but 
should  rather  be  left  to  those  more  skilled  in  the  law  of  real 
property. 


22 


Conditions,  Restrictions  and  Reservations 

as  Met  With  in  the  Usual  Course 

of  Our  Business 

1st:  It  is  lawful  to  create  Covenants  and  Conditions 
which  may  not  run  with  the  land,  which  will  be  bind- 
ing on  all  subsequent  owners  having  notice,  actual 
or  constructive.  The  law  permits  the  use  of  such 
property  to  be  restricted  within  reason  and  will 
enforce  such  agreements  so  long  as  the  reason  for  the 
restriction  exists. 

2nd:  Courts  will  not  permit  forfeiture  of  title  unless  he 
who  is  the  reverter  comes  into  Court  with  clean 
hands.  He  cannot  violate  the  agreement,  nor  consent 
to  others  violating  it,  unless  he  himself  be  estopped. 

3rd:  Courts  will  generally  relieve  property  from  such 
restrictions  where  the  character  of  the  property  and 
the  nature  of  the  surroundings  have  so  changed  since 
the  creation  of  the  Conditions  as  to  render  them  use- 
less, burdensome  and  of  doubtful  benefit  to  those  for 
whom  they  were  created. 

4th:  Where  a  general  plan  of  subdivision  is  contemplated, 
and  a  clear  and  definite  set  of  Conditions  are  created 
for  the  benefit  of  the  tract,  it  is  generally  safe  to 
assume  that  the  restrictions  will  hold,  and  that  all 
subsequent  owners  will  be  bound. 

5th:  The  common  grantor,  in  such  cases,  may  limit  the 
right  to  enjoin  or  abate  to  himself  or  to  the  owners  of 
the  adjoining  property,  or  to  the  owners  of  property 
in  the  same  tract,  or  the  like,  and  the  right  to  enforce- 
ment will  be  limited  to  such  as  are  thus  named  as 
entitled  to  these  benefits. 

6th:  The  common  grantor  who  has  created  such  restric- 
tions cannot,  even  if  he  has  parted  with  the  remaining 
property,  destroy  the  easement  by  his  own  and  sole 
account.  He  can  only  release  his  right  to  reverter, 
and  no  more. 

23 


The  word  "outhouse,"  or  "outbuilding"  has  been  defined  as 
a  building  joining  or  belonging  to  a  dwelling  house — some- 
thing to  be  used  in  connection  with  the  main  building.  The 
controlling  idea  of  the  word  "dwelling"  is  that  it  is  intended 
for  human  occupancy.  A  restriction  against  any  use  other 
than  a  "private  dwelling"  restricts  against  all  buildings  for 
business  purposes,  generally  speaking,  and  the  word  "pri- 
vate" excludes  buildings  of  a  public  character,  such  as 
hotels,  general  or  public  boarding  houses  and  lodging 
houses,  although  it  is  probable  that  where  restrictions  pro- 
vide that  only  dwelling  houses  shall  be  built,  it  may  not 
exclude  tenement  houses  or  apartment  houses.  A  private 
residence  is  defined  by  our  Supreme  Court  as  a  habitation 
designed  to  be  used  by  one  family  only. 

This  again  calls  for  strict  legal  interpretation,  and  is  a  mat- 
ter to  be  determined  by  those  skilled  in  the  law,  but  is  here 
given  only  for  general  information. 

Where  the  operation  of  the  Covenant  is  limited  as  to  time, 
the  same  may  be  ignored  after  the  expiration  of  the  time 
limit,  if  no  breach  has  occurred. 

Whether  there  has  been  any  breach  or  violation  prior  to  the 
time  of  the  expiration  of  the  Condition  or  Covenant,  is, 
therefore,  a  matter  of  fact  to  be  clearly  established. 

Otherwise  the  restriction  must  be  regarded  until  such  time 
as  an  action  for  breach  is  barred  by  the  statute  of  limitation, 
that  period  being  five  years  as  to  action  to  recover  posses- 
sion of  real  property. 

It  is  difficult,  and  exceedingly  so,  to  determine  in  many 
instances  how  restrictions  can  be  cleared  from  records,  and 
who  has  the  power  to  release  such  burdens. 

Generally  speaking,  if  it  appears  that  the  restrictions  were 
created  for  the  benefit  of  the  grantor  alone,  he  is  the  only 
person  necessary  to  consent  to  the  relieving  of  the  restric- 
tions. But  if  made  for  the  benefit  of  adjoining  lots,  or  lots 

24 


on  the  same  street  or  block,  it  would  be  necessary,  ih  order 
to  clear  the  title,  to  secure  deeds  from  the  original  grantor, 
and  from  the  owners  and  holders  of  covenants  on  any  such 
lots  named  as  having  the  benefits. 

If  the  grantor  does  not  limit  the  benefit  to  the  whole  tract, 
but  the  restrictions  are  clearly  for  the  benefit  of  the  whole 
tract,  all  owners  and  incumbrance  holders  in  the  tract  would 
have  to  join  in  any  deed  to  relieve  die  property  of  such 
restrictions. 

Every  set  of  conditions,  restrictions  and  covenants  must  be 
considered  by  itself,  and  the  conditions  surrounding  each 
one  taken  into  careful  consideration,  as  forfeitures  have  been 
declared  by  our  Courts,  and  upheld  by  the  Supreme  Court, 
even  where  no  time  limit  was  stated,  and  where  there  was  no 
direct  statement  that  the  title  was  to  be  forfeited  in  case  of 
violation. 

The  only  safe  rule  to  follow  is  to  take  no  chances.  Consider 
the  restrictions  seriously,  and  have  them  interpreted  and 
passed  upon  by  competent  attorneys,  and  act  upon  such 
competent  advice. 


25 


Mechanic's  Liens 

In  escrows  and  in  connection  with  the  examination  of  the 
title  to  real  property,  we  meet  frequently  with  another  form 
known  as  Mechanic's  Liens. 

A  Mechanic's  Lien  has  been  defined  as  a  claim  created  by 
law  for  the  purpose  of  securing  a  priority  of  payment  of  the 
price  or  value  of  work  performed  or  materials  furnished  in 
erecting  or  repairing  a  building  or  other  structure,  and  as 
such,  it  attaches  to  the  land  as  well  as  to  the  building  erected 
thereon.  The  right  to  create  and  enforce  such  a  lien  is  a 
creature  of  and  dependent  on  statutes. 

Section  1185  of  the  Code  of  Civil  Procedure  provides  that 
the  land  upon  which  any  building,  etc.,  is  constructed, 
together  with  such  space  about  the  same  as  may  be  required 
for  the  convenient  use  and  occupation  thereof,  to  be  deter- 
mined by  the  Court  on  rendering  judgment,  is  also  subject 
to  the  lien  if  at  the  commencement  of  the  work  or  of  the 
furnishing  of  the  material  for  the  same,  the  land  belonged 
to  the  person  causing  the  work  to  be  done.  But  if  such  per- 
son own  less  than  fee  simple  estate  in  such  land,  then  only 
his  interest  therein  is  subject  to  such  lien  unless  the  owner  of 
the  fee  had  knowledge  of  such  work  and  failed  to  give  notice 
of  nonliability  provided  for  in  Section  1192  C.  C.  P. 

Section  1183  C.  C.  P.  provides  that  mechanics,  material- 
men,  contractors,  sub-contractors,  architects  and  all  persons 
performing  services  or  labor  upon  or  furnishing  materials 
for  the  construction,  alteration,  addition  to  or  repair  of 
any  building,  etc.,  shall  have  a  lien  upon  the  property  upon 
which  they  have  bestowed  labor  or  furnished  materials,  for 
the  value  of  such  labor  or  materials.  Every  contractor,  sub- 
contractor, architect,  builder  or  other  person  having  charge 
of  the  work  shall  be  held  to  be  the  agent  of  the  owner. 

The  filing  of  the  original  contract  between  the  owner  and  the 
contractor  in  the  Recorder's  Office  is  equivalent  to  the  giving 
of  actual  notice  by  the  owner  to  all  persons  performing  work 
or  furnishing  materials  thereunder.  In  case  said  original 

26 


contract  be  filed  before  the  work  is  commenced,  together 
with  the  bond  of  the  contractor  in  an  amount  not  less  than 
fifty  per  cent  of  the  contract  price,  which  bond  shall  be  con- 
ditioned for  the  payment  in  full  of  the  claims  of  all  persons 
performing  labor  upon  or  furnishing  materials  to  be  used 
in  such  work,  and  shall  also  be  made  to  inure  to  the  benefit 
of  any  and  all  persons  who  performed  labor  or  furnished 
materials  to  be  used  in  said  work,  so  as  to  give  said  persons 
a  right  of  action  to  recover  upon  said  bond  in  any  suit 
brought  to  foreclose  such  liens,  then  the  court  must,  where 
it  would  be  equitable  so  to  do,  restrict  the  recovery  under 
such  liens  to  the  aggregate  amount  equal  to  the  amount 
found  to  be  due  from  the  owner  to  the  contractor,  and  render 
a  judgment  against  the  contractor  and  sureties  on  such  bond 
for  any  deficiency. 

Section  1184  C.  C.  P.  Any  of  the  persons  mentioned  above, 
except  the  contractor,  may  within  the  time  in  which  liens 
must  be  filed  for  record,  give  the  owner  verified  written 
notice  that  they  have  performed  labor  or  furnished  materials, 
or  both,  to  the  contractor  or  other  person  acting  by  authority 
of  the  owner,  or  that  they  have  agreed  to  do  so,  stating  the 
name  of  the  person  to  or  for  whom  the  same  was  done  or 
furnished,  and  the  character  and  value  thereof.  Any  of  such 
persons  who,  upon  written  demand  of  the  owner,  shall  refuse 
to  give  such  notice,  shall  be  deprived  of  the  right  to  claim 
a  lien. 

When  such  a  notice  is  given,  the  owner  may  withhold  from 
his  contractor  sufficient  money  due  to  such  contractor  to 
answer  such  claim  and  any  lien  that  may  be  filed  therefor, 
including  the  reasonable  cost  of  any  litigation  thereunder. 
Section  1184a,  C.  C.  P.,  provides  that  any  action  to  enforce 
the  payment  of  cny  such  claim  must  be  commenced  prior  to 
the  expiration  of  the  period  within  which  claims  or  liens 
must  be  filed  for  record,  and  not  later  than  ninety  days  fol- 
lowing the  expiration  of  such  period. 

Section  1141  C.  C.  P.,  provides  that  the  homestead  is  sub- 
ject to  execution  or  forced  sale  in  satisfaction  of  judgments 
obtained  for  Mechanic's  Liens. 

27 


Section  1186  C.  C.  P.,  provides  that  Mechanic's  Liens  are 
preferred  to  any  lien,  mortgage  or  other  incumbrance  which 
may  have  attached  subsequent  to  the  time  when  the  building, 
etc.,  was  commenced,  work  done,  or  materials  were  com- 
menced to  be  furnished;  also  to  any  lien,  mortgage  or  other 
incumbrance  not  of  record  and  of  which  the  lien  holder  had 
no  notice. 

By  Section  1187  C.  C.  P.  the  original  contractor  has  sixty 
days  after  the  completion  of  his  contract  within  which  to  file 
his  lien,  and  all  other  persons  may  file  their  liens  after  they 
have  ceased  to  perform  labor  or  furnish  materials  and  until 
thirty  days  after  the  completion  of  such  work  of  improve- 
ment. 

Any  of  the  following  shall  be  deemed  equivalent  to  the 
completion: 

1st:  The  occupation  or  use  of  a  building,  improvement  or  structure 
by  the  owner  or  his  representative,  accompanied  by  cessation 
from  labor  thereon. 

2nd:  The  acceptance  by  the  owner  or  agent  of  said  building, 
improvement  or  structure. 

3rd:  The  cessation  from  labor  for  thirty  days  upon  any  contract  or 
upon  any  building,  improvement  or  structure,  or  the  alteration, 
addition  to,  or  repair  thereof. 

4th:  The  filing  of  notice  of  completion  by  the  owner  within  ten  days 
after  the  date  of  actual  completion. 

The  owner  shall,  within  ten  days  after  the  completion  of 
any  contract  or  improvement,  or  within  ten  days  after  there 
has  been  a  cessation  of  labor  thereon  for  a  period  of  thirty 
days,  file  for  record  in  the  recorder's  office,  a  notice  setting 
forth  the  date  when  the  same  was  completed  or  on  which 
cessation  from  labor  occurred.  In  case  such  notice  be  not  so 
filed,  then  the  persons  entitled  to  liens  shall  have  ninety  days 
after  the  completion  of  such  improvement  within  which  to 
file  same. 

Section  1190  C.  C.  P.,  provides  that  no  Mechanic's  Lien 
binds  any  property  for  a  longer  period  than  ninety  days 
after  the  same  has  been  filed  unless  proceedings  be  com- 

28 


menced  in  a  proper  court  within  that  time  to  enforce  the 
same,  or  if  a  credit  be  given  within  ninety  days  after  the 
expiration  of  such  credit,  but  no  lien  continues  in  force 
for  a  longer  time  than  one  year  from  the  time  the  work  is 
completed  by  any  agreement  to  give  credit,  and  in  case  such 
proceedings  be  not  prosecuted  to  trial  within  two  years  after 
the  commencement  thereof,  the  court  may,  in  its  discretion, 
dismiss  the  same  for  want  of  prosecution. 

In  case  of  the  dismissal  of  such  action  (unless  it  be  expressly 
stated  that  the  same  be  without  prejudice)  or  a  judgment  ren- 
dered therefor  that  no  lien  exists,  shall  be  equivalent  to  the 
cancellation  and  removal  from  the  record  of  such  lien. 

Section  1191  C.  C.  P.,  provides  that  any  person  who,  at  the 
request  of  the  owner  of  any  tract  of  land,  grades,  fills  in,  or 
otherwise  improves  the  same  or  the  street  or  sidewalk  in 
front  of  or  adjoining  the  same,  or  constructs  any  areas,  etc., 
under  such  sidewalks,  has  a  lien  upon  said  land  for  work 
done  or  materials  furnished.  If  the  improvement  is  subject 
to  acceptance  by  any  municipal  board  or  officer,  the  time  for 
filing  claims  and  liens  begins  to  run  upon  such  acceptance. 
Section  1192,  C.  C.  P.,  provides  that  work  done,  materials 
furnished,  building  constructed  or  improvement  made  upon 
any  land  with  the  knowledge  of  the  owner  or  of  any  other 
person  having  or  claiming  any  estate  therein,  is  deemed  to 
be  done,  performed  or  furnished  at  the  instance  of  such 
owner  or  other  person,  and  such  interest  under  or  claim  is 
subject  to  any  lien  properly  filed  unless  such  owner  or  other 
person  shall,  within  ten  days  after  obtaining  knowledge 
thereof,  give  notice  that  he  will  not  be  responsible  for  same 
by  posting  on  the  property  a  notice  in  writing  to  that  effect 
and  also  recording  in  the  recorder's  office  a  like  notice. 

Section  1193,  C.  C.  P.,  provides  that  the  contractor  can 
recover  on  any  lien  filed  by  him  only  such  an  amount  as 
shall  be  due  according  to  the  terms  of  his  contract,  after 
deducting  all  claims  of  other  parties  for  work  done  and 
materials  furnished  as  embraced  within  his  contract,  and  if 
a  lien  be  filed  for  work  done  or  materials  furnished  to  the 

29 


contractor,  he  shall  defend  any  action  brought  thereon  at 
his  own  expense,  and  during  the  pendency  of  such  action,  the 
owner  may  withhold  from  the  contractor,  the  amount  of 
money  for  which  such  lien  is  filed;  and  in  case  of  judgment 
thereon  against  the  owner,  said  owner  may  deduct  from  the 
amount  due  the  contractor  the  amount  of  such  judgment  and 
costs;  or  if  the  same  exceeds  the  amount  due  the  contractor, 
or  the  owner  has  settled  in  full  with  the  contractor,  the  owner 
is  entitled  to  recover  back  from  the  contractor  or  his  bonds- 
men such  amount. 

Section  1194,  C.  C.  P.,  provides  that  whenever,  on  the  sale  of 
property  under  foreclosure  of  a  Mechanic's  Lien,  there  is  a 
deficiency  of  proceeds,  a  deficiency  judgment  may  be  dock- 
eted against  the  party  personally  liable  therefor. 

Section  1195,  C.  C.  P.,  provides  that  several  persons  holding 
liens  may  join  in  the  same  action,  or  if  separate  actions  are 
commenced,  they  may  consolidate. 

Section  1196,  C.  C.  P.,  provides  that  whenever  materials 
shall  have  been  furnished  for  use  in  the  construction,  altera- 
tion or  repair  of  any  building  or  other  improvement,  such 
materials  shall  not  be  subject  to  attachment,  execution  or 
other  legal  process  to  enforce  any  debt  due  for  the  purchase 
money  thereof,  so  long  as  in  good  faith  the  same  are  about  to 
be  applied  to  the  construction,  alteration  or  repair  of  such 
building,  mining  claim  or  other  improvement. 

Section  1197,  C.  C.  P.,  provides  that  any  person  to  whom  a 
debt  is  due  for  work  done  or  materials  furnished,  may  main- 
tain a  personal  action  to  recover  the  same  against  the  person 
liable  therefor  and  may  take  out  a  judgment  notwithstanding 
his  lien. 

Any  judgment  obtained  does  not  impair  or  merge  the  lien, 
but  any  amount  collected  on  such  judgment  must  be  credited 
on  the  amount  of  such  lien  in  action  brought  on  the  lien. 

Section  1201,  C.  C.  P.,  provides  that  the  owner  and  con- 
tractor, or  either  of  them,  cannot  waive  or  impair  the  claims 
and  liens  of  other  persons  except  by  their  written  consent. 

30 


Section  1202,  C.  C.  P.,  provides  that  any  person  wilfully 
giving  false  notice  of  his  claim  to  the  owner,  and  any  person 
wilfully  including  in  his  claim  work  or  materials  not  per- 
formed upon  or  furnished  for  the  property  described,  shall 
forfeit  his  lien. 

Section  1203,  C.  C.  P.,  provides  that  mistakes  in  statement 
of  facts  or  in  the  description  of  the  property  do  not  invali- 
date the  lien  if  not  made  with  the  intent  to  defraud,  unless 
the  court  shall  find  that  subsequent  to  the  filing  of  the  lien, 
an  innocent  third  party  without  notice,  direct  or  constructive, 
has  become  the  bona  fide  owner  of  the  property. 

It  may  be  noted  that  the  lien  is  for  the  erection  of  a  building 
or  work  done  thereon  or  on  some  such  improvement  as  en- 
titles one  to  a  lien  for  labor  or  materials  furnished,  and 
upon  this  theory  it  has  been  held  that  upon  destruction  of  the 
building  by  fire  the  lien  ceases.  146  Cal.  686;  34  Cal. 
A.  P.  P.  799. 


31 


Judgments 

All  money  judgments  .rendered  in  the  Superior  Court  or  the 
Federal  Courts  become  liens  from  the  time  the  judgments  are 
docketed  upon  all  the  real  property  of  the  judgment  debtor 
not  exempt  from  execution,  owned  by  him  at  the  time,  or 
which  he  may  afterward  acquire,  until  the  lien  ceases.  The 
lien  of  such  judgment  continues  for  five  years  unless  it  is 
stayed  on  appeal.  (671  C.  C.  P.). 

Where  a  judgment  is  obtained  in  a  court  of  another  jurisdic- 
tion, it  is  possible  to  record  a  transcript  or  abstract  of  judg- 
ment, and  such  judgment  will  thereupon  become  a  lien  at 
the  date  of  riling  in  the  Recorder's  office  of  the  county  in 
which  the  property  is  located.  Such  a  lien  continues  for 
two  years  from  the  date  of  such  recording,  except  that  the 
lien  does  not  extend  beyond  five  years  from  the  date  of 
judgment.  (674  &  900  C.  C.  P.) . 

At  the  expiration  of  the  two  year  period  above  referred  to, 
a  new  transcript  may  be  filed  at  any  time  before  the  expira- 
tion of  the  five  year  period. 

Abstracts  of  judgment  from  Justice  Courts,  filed  in  the 
County  Clerk's  office  are  not  liens.  The  purpose  of  such 
filing  is  to  have  an  execution  issued  to  another  county  in  this 
state.  (899  and  900  C.  C.  P.) . 

In  making  an  examination  of  title,  therefore,  to  determine 
what  judgments,  if  any,  there  may  be  affecting  the  interest  of 
the  parties  connected  with  the  chain  of  title,  it  is  necessary  to 
search  the  judgments  during  the  entire  period  that  such 
judgment  would  be  a  lien,  and  against  the  names  of  every 
party  connected  with  the  title  whose  interest  would  be 
affected  by  any  such  judgment. 

A  deficiency  judgment  on  foreclosure  is  a  lien  only  from  the 
date  of  the  docketing  of  the  deficiency.  (726  C.  C.  P.  119 
Cal.22). 

32 


A  judgment  may  be  satisfied: 

(a)  By  an  endorsement  on  the  margin  of  the  judgment  book,  signed 
by  the  judgment  creditor  or  by  his  attorney  of  record,  acknowl- 
edged before  the  County  Clerk.     (675  C.  C.  P.) 

(b)  By  a  release  or  satisfaction  executed  and  acknowledged  by  the 
judgment  creditor  or  by  his  attorney  of  record,  filed  in  the  case. 
(675  C.  C.  P.) 

(c)  By  return  of  the  execution  on  file  among  the  papers  showing  the 
judgment    to    have    been    paid  in    full.      The    clerk    will    enter 
satisfaction  on  record,  if  he  has  not  already  done  so. 

An  attorney-at-law  has  no  power,  in  the  absence  of  express 
written  authority,  to  release  property  from  the  lien  of  a 
judgment  nor  to  release  a  judgment  in  full  upon  receipt  of 
less  than  the  full  amount  due  thereunder.  (283  C.  C.  P.) 

A  satisfaction  of  judgment  must  be  acknowledged  (675  C.  C. 
P.)  and  may  be  recorded  in  the  Recorder's  office.  In  fact, 
the  practice  is  to  so  record  all  releases,  other  than  full  re- 
leases, showing  certain  specific  property  released  from  the 
lien  of  judgment,  with  direction  that  after  being  recorded 
the  releases  shall  be  forwarded  to  the  County  Clerk  and  by 
him  filed. 

It  should  be  known  also  that  the  lien  of  a  judgment  may  be 
released  from  real  property  on  the  granting  of  a  new  trial, 
or  on  the  filing  of  a  proper  stay  bond,  or  upon  the  per- 
fecting of  an  appeal  with  the  filing  of  proper  and  accept- 
able bonds,  or  by  order  of  court  setting  aside  judgment. 

It  is  not  necessary  in  this  booklet  to  go  more  fully  into  the 
requirements  necessary  to  release  the  lien  and  the  require- 
ments to  be  met  in  the  filing  of  bonds  and  rights  to  object 
to  the  sureties,  etc.  It  is  sufficient  to  know  that  these  must  be 
taken  into  consideration  in  the  search  of  the  title  of  the 
property  where  such  conditions  are  found  to  exist.  Nor  is 
it  advisable  here  to  discuss  the  technical  questions  as  to 
whether  judgments  may  be  a  lien  when  against  the  husband; 
on  property  standing  of  record  in  the  name  of  the  wife,  pre- 
33 


sumptively  as  her  separate  property;  or  upon  property 
acquired  by  gift  from  the  husband  to  the  wife;  or  where 
some  conveyance  may  have  been  made  for  the  purpose  of 
evading  creditors. 

Such  matters  are  dealt  with  by  the  title  department,  and  so 
far  as  the  escrow  is  concerned,  the  escrowholder  is  entitled 
to  rely  upon  the  title  men's  instructions  relative  to  such 
cases. 


34 


Bankruptcy 

Where  certain  persons  or  corporations  have  not  assets  suffic- 
ient to  pay  their  debts,  a  way  has  been  provided  by  the 
Federal  Statutes  to  protect  such  persons  or  corporations  from 
persecution,  and  to  permit  of  his  being  made  a  voluntary  or 
involuntary  bankrupt,  by  distributing  his  assets  amongst 
his  creditors  in  settlement  of  his  debts,  in  accordance  with 
the  terms  and  conditions  of  the  bankruptcy  acts. 

The  theory  of  the  bankruptcy  laws  must  be  understood,  for 
it  is  not  the  purpose  to  punish  the  bankrupt  nor  to  relieve 
him  of  his  just  debts  and  obligations,  but  rather  to  bring 
about  an  equitable  adjustment  to  the  end  that  each  of  his 
creditors  may  receive  a  proportionate  amount  of  the  assets 
of  the  bankrupt,  and  that  the  bankrupt  may  then  be  dis- 
charged from  any  further  liability  from  such  debts  as  are 
listed,  and  thus  have  an  opportunity  to  begin  his  business 
life  with  a  clean  slate. 

Certain  property  of  the  bankrupt  is  exempt  from  execution, 
but  all  of  his  main  assets,  other  than  those  exempted,  become 
vested  in  the  Trustee  of  the  estate  of  the  bankrupt,  upon  the 
appointment  and  qualification  of  such  Trustee,  subject  to 
sale  in  the  form  and  manner  prescribed  by  the  bankruptcy 
acts. 

Such  bankruptcy  proceedings  are  commenced  in  the  United 
States  District  Courts.  In  our  District,  the  local  Federal 
Courts  having  jurisdiction  are  the  United  States  District 
Court  for  the  Southern  District  of  California.  This  Court 
has  two  divisions,  i.  e.,  the  Northern  Division,  sitting  at 
Fresno,  and  the  Southern  Division,  sitting  at  Los  Angeles 
and  San  Diego. 

For  jurisdictional  purposes,  bankruptcy  proceedings  are 
commenced  by  the  filing  of  an  original  petition.  The  bank- 
ruptcy imposes  upon  the  bankrupt  the  duty  to  prepare,  make 
oath  to  and  file  within  ten  days,  unless  further  time  is 
granted  after  the  adjudication  if  an  involuntary  bankrupt, 

35 


and  with  the  petition  if  a  voluntary  bankrupt,  a  schedule  of 
his  property,  showing  the  amount  and  kind  of  property,  the 
location  thereof,  its  money  value  in  detail,  and  a  list  of  his 
creditors,  showing  their  residences,  if  known,  or  that  their 
residences  are  unknown,  the  amounts  due  each  of  them,  the 
consideration  thereof,  the  security  held  by  them,  if  any,  and 
a  claim  for  such  exemption  as  he  may  be  entitled  to  under 
the  law. 

An  adjudication  of  bankruptcy  operates  as  a  notice  to  the 
world,  having  the  effect  of  an  attachment  and  an  injunction. 
It  brings  the  entire  estate  of  the  bankrupt,  insofar  as  it  is  not 
exempted,  into  the  custody  of  the  law,  and  appropriates  it 
to  the  payment  of  his  debts,  and  where  followed  by  the 
appointment  of  a  Trustee,  is  constructive  notice  to  every- 
body, at  least  within  the  Federal  jurisdiction,  of  the  transfer 
of  title  to  the  bankrupt's  property,  and  such  persons  must 
take  notice  that  the  ownership  of  the  bankrupt  has  ceased, 
and  becomes  vested  in  the  Trustee.  The  title  vests  in  the 
Trustee  only  for  the  purpose  of  administration  and  distribu- 
tion among  the  creditors. 

The  Trustee  may  disclaim  as  to  such  property  as  would  be 
detrimental  to  the  interests  of  the  creditors,  such  as  an 
unprofitable  lease,  but  afterward  cannot  claim  the  benefits 
if  there  should  be  any. 

The  debtor  cannot  sell,  transfer,  or  convey  property  while 
bankruptcy  proceedings  are  pending.  The  bankruptcy  act 
expressly  confers  upon  the  Court  of  Bankruptcy  the  power 
to  cause  the  estates  of  bankrupts  to  be  collected,  reduced  to 
money  and  distributed.  Such  property  may  be  sold  free  of 
liens  or  subject  to  existing  incumbrances. 

A  bankrupt  may  apply  for  a  discharge  at  any  time  after  the 
expiration  of  one  month  after  date  of  his  adjudication,  and 
within  ten  months  subsequent  thereto.  He  is  entitled  to 
receive  this  discharge  as  a  matter  of  right,  unless  some  of  the 
reasons  specified  by  the  Bankruptcy  Acts  for  refusing  his 
discharge  are  found  to  exist. 

36 


One  who  seeks  to  avoid  his  debtors  under  the  Bankruptcy 
Acts  must  comply  strictly  with  its  provisions,  and  if  he  fails 
to  apply  for  his  discharge  within  the  time  limit,  the  right 
is  lost  to  him  forever. 

A  discharge  having  been  asked  for  and  granted  is  con- 
clusive against  any  future  liability  of  the  bankrupt  in  respect 
to  debts  which  the  statutes  provide  shall  be  released  and  as 
to  his  right  to  such  discharge. 

On  the  close  of  the  bankruptcy  proceedings,  the  property  of 
the  bankrupt  undistributed  reverts  to  him  or  to  those  en- 
titled to  his  estate. 

In  ordinary  procedure,  as  same  will  affect  the  handling  of 
our  escrow  and  title  work,  sale  is  usually  made  by  the 
Trustee  or  Referee  in  bankruptcy,  sometimes  under  order  of 
the  court,  and  sometimes  otherwise,  and  such  sales  are 
treated  much  in  the  same  manner  as  sales  by  Executors  or 
Guardians. 

It  is  not  necessary  in  this  treatment  of  the  subject  to  go  into 
the  question  as  to  what  exemptions  are  permitted,  what 
property  becomes  vested  in  the  Trustee  and  what  property 
does  not  become  so  vested.  Nor  as  to  what  may  become  of 
the  property  which  the  bankrupt  failed  to  list  through  con- 
cealment or  otherwise.  The  foregoing  article  is  intended 
merely  to  give  an  idea  as  to  the  purpose,  meaning  and  effect 
of  bankruptcy  laws. 


37 


Attachments  and  Executions 

An  attachment  is  seizure  of  defendant's  property  as  security 
for  judgment  which  the  plaintiff  may  recover  in  the  action. 
The  attachment  is  merely  a  proceeding  ancillary  to  the 
action  by  which  the  party  is  enabled  to  acquire  a  lien  for 
the  securing  of  his  demand  by  a  levy  made  before,  instead  of 
after,  the  entry  of  judgment 

The  law  allowing  an  attachment  is  strictly  construed  and 
must  be  strictly  followed. 

The  attachment  lien  continues  for  three  years  after  the  date 
of  levy,  unless  sooner  released  or  discharged,  or  unless  the 
action  be  sooner  dismissed  or  goes  to  judgment.  On  motion, 
not  less  than  five  nor  more  than  sixty  days  before  the  expira- 
tion of  said  three  years  period,  the  Court  may  extend  the 
period  not  to  exceed  two  years  from  such  expiration  date. 
An  attachment  may  rest  against  the  interest  of  a  party  in 
real  property  even  though  the  property  stands  vested  of 
record  in  the  name  of  another  party,  provided  strict  com- 
pliance is  had  with  the  provisions  of  the  law. 

This  is  covered  by  Section  No.  542  C.  C.  P.,  which  provides 
that  "Real  property  or  an  interest  therein  belonging  to  the 
defendant  and  held  by  any  other  person,  or  standing  on  the 
records  of  the  county  in  the  name  of  any  other  person,  must 
be  attached  by  filing  with  the  Recorder  of  the  county  a  copy 
of  the  writ,  together  with  a  description  of  the  property,  and 
a  notice  that  such  real  property  and  any  interest  of  the 
defendant  therein,  held  by  or  standing  in  the  name  of  such 
named  person  (naming  him)  are  attached."  In  other  words, 
"the  interest  of  A,  standing  in  the  name  of  B." 

An  attachment  as  to  any  real  property  may  be  released  by 
writing,  signed  by  the  plaintiff  or  his  attorney,  or  by  the 
officer  who  levied  the  writ,  and  acknowledged  in  like  manner 
as  a  grant  of  real  property.  Such  attachment  may  also  be 
released  by  an  entry  on  the  margin  of  the  record  of  the 
county  recorder's  office,  or  an  attachment  may  be  discharged 
by  an  order  of  the  Court,  if  it  was  improperly  or  irregularly 
issued. 

38 


If  an  attachment  is  levied  upon  property  and  declaration  of 
homestead  be  filed  before  judgment  is  obtained  in  the  judg- 
ment suit,  the  homestead  defeats  the  judgment  and  the  judg- 
ment is  not  a  lien  on  the  property  described  in  the  home- 
stead declaration,  provided,  of  course,  that  the  statements 
in  the  declaration  are  true  and  that  the  declaration  is  in  all 
respects  valid. 

In  cases  where  an  attachment  is  levied  upon  property  and  the 
owner  makes  a  conveyance  thereof  before  the  docketing  of 
the  judgment,  while  the  judgment  itself  does  not  become  a 
lien,  the  lien  of  the  attachment  still  remains. 

Where  a  judgment  is  rendered  and  becomes  a  lien  upon  the 
property  attached,  the  lien  of  the  attachment  becomes  merged 
in  that  of  the  judgment. 


39 


Homesteads 

In  California  a  homestead  is  exempt  from  execution  to  the 
extent  of  $5,000.00,  when  made  by  the  head  of  a  family,  or 
$1,000.00  when  made  by  other  than  the  head  of  a  family. 
Homesteads  are  controlled  entirely  by  statute;  therefore  the 
requirements  of  such  must  be  followed  carefully  and  strictly 
complied  with. 

A  homestead  may  be  declared  by  the  head  of  a  family  on 
property  belonging  to  the  one  making  the  declaration,  or  by 
the  wife  on  community  property  or  on  property  held  in 
joint  tenancy,  or  on  the  husband's  separate  property,  or  on 
her  own  separate  property. 

A  husband  cannot,  however,  declare  a  homestead  on  the 
separate  property  of  the  wife,  unless  she  joins  in  the 
declaration. 

A  homestead  may  be  declared  bv  both  the  husband  and  wife 
joining  in  the  same  declaration,  or  on  any  property  that  may 
be  owned  by  either  or  both  of  them,  or  on  any  interest  that 
they  may  have  in  the  property,  whether  it  be  contract 
interest  or  otherwise,  provided  they  are  not  holding  an 
undivided  interest  with  anyone  else.  An  undivided  interest 
in  property  cannot  be  homesteaded. 

A  homestead,  to  be  valid,  must  be  filed  with  the  County 
Recorder  by  the  party  entitled  to  claim  the  property  as  a 
homestead;  must  be  acknowledged  in  due  form  before  a 
notary  public,  and  must  be  actually  filed  for  record  in  the 
office  of  the  County  Recorder.  In  that  respect  a  homestead 
differs  from  a  deed.  A  deed  may  convey  the  ownership  of 
real  property  without  being  acknowledged  and  without  being 
recorded,  although  it  is  not  evidence  to  the  world  of  the 
conveyance.  Neither  a  declaration  nor  an  abandonment  of 
homestead  is  effective  until  actually  filed  for  record,  and 
both  must  be  signed  and  acknowledged  in  person.  An 
attorney  in  fact  cannot  act  for  either  principal.  Nor  can 
execution  by  either  spouse  be  proven  by  subscribing  witness. 
A  husband  and  wife  can  have  but  one  homestead  at  a  time 
in  the  State  of  California.  For  that  reason  it  is  very  difficult 

40 


to  determine  whether  a  homestead  is  valid.  For  instance, 
if  there  is  a  homestead  in  another  county  in  this  state,  one 
cannot  be  lawfully  claimed  in  this  county  until  the  former 
homestead  is  abandoned. 

Abandonment  of  homestead  may  be  made  either  by  written 
abandonment,  signed  and  acknowledged  by  the  husband  and 
wife  (if  married),  or  it  may  be  made  by  signing,  acknow- 
ledging and  delivering  a  grant  deed,  in  which  both  the  hus- 
band and  the  wife  join  in  the  execution  thereof. 

There  are  certain  requirements  essential  to  a  good  declara- 
tion of  homestead.  The  declaration  must  contain  a  state- 
ment that  the  person  making  it  is  the  head  of  a  family,  and 
if  married,  must  give  the  name  of  the  spouse;  when  made  by 
the  wife,  it  should  show  that  the  husband  has  not  made  a 
declaration  of  homestead,  and  therefore  it  is  for  their  joint 
benefit;  that  the  claimant  actually  resides  on  the  property 
that  is  claimed  as  a  homestead.  The  description  must  be 
definite.  The  estimated  or  actual  value  must  be  given  as  of 
the  date  of  the  homestead.  There  is  no  limit  to  the  value  of 
the  property  that  may  be  homesteaded,  although  the  amount 
of  the  homestead  exemption  is  limited,  as  above  stated. 
The  terms  and  requirements  of  the  statute  must  be  observed. 
The  instrument  must  be  acknowledged  in  due  form  and  it 
must  be  filed  for  record. 

While  the  main  purpose  of  the  homestead  is  to  protect  and 
to  save  the  home,  it  does  not  necessarily  follow  that  the 
homestead  would  be  invalidated  if  it  were  used  for  any 
other  purpose,  so  long  as  its  prime  purpose  was  that  of  a 
home. 

The  homestead  exemption  takes  precedence  over  any  judg- 
ment or  attachment  that  may  be  filed  subsequent  to  the 
declaration  of  the  homestead  itself,  but  a  homestead  is  not 
valid  against  a  mortgage  executed  by  both  the  husband  and 
the  wife,  nor  against  mechanic's  liens,  a  bill  for  labor  or 
material  used  for  the  erection  of  a  house  on  the  premises, 
even  though  the  material  and  labor  may  have  been  used 
subsequent  to  the  filing  of  the  homestead. 

41 


The  declaration  of  homestead  is  not  a  prior  lien  to  the  lien 
of  a  judgment  that  has  been  docketed  before  the  filing  of  the 
declaration,  but  if  the  judgment  is  entered  subsequent  to  the 
date  of  the  recording  of  a  valid  homestead,  the  judgment 
debtor  has  the  right  to  apply  to  the  Court  for  the  appoint- 
ment of  an  appraiser  to  appraise  the  property.  If  the 
property  is  appraised  at  over  $5,000.00,  such  creditor 
has  the  right  to  ask  that  the  property  be  divided,  if  it  is 
possible  to  do  so  without  destroying  the  home,  carving  out 
$5,000.00  worth  to  be  set  aside  for  the  homestead,  and  hav- 
ing the  balance  of  the  property  sold  for  the  satisfaction  of 
the  debt. 

The  Court  can  order  the  sale  of  homestead  property  where 
the  value  is  in  excess  of  $5,000.00,  and  out  of  the  proceeds 
of  such  sale  $5,000.00  can  be  set  aside  as  exempt  from  execu- 
tion by  creditors  for  a  period  of  six  months  after  the  date 
of  the  sale,  giving  time  to  dispose  of  the  money  before  some- 
body else  can  seize  upon  it.  In  other  words,  a  sale  could  not 
be  made  in  such  a  manner  without  leaving  the  amount  of  the 
homestead  exemption  immune  from  attack  during  such 
period. 

The  same  would  hold  true  as  to  exemption  in  case  of  a  regu- 
lar sale  of  homestead  property. 

There  is  no  good  reason  why  a  declaration  of  homestead, 
when  the  title  otherwise  shows  clear,  should  be  abandoned 
for  the  purpose  of  putting  a  mortgage  or  deed  of  trust  on 
the  property,  provided  the  mortgage  or  deed  of  trust  is 
executed  by  both  the  husband  and  the  wife,  and  provided 
the  consideration  inures  to  the  benefit  of  both. 

Many  of  the  finer  points  dealing  with  homesteads  have  not 
been  touched  upon  here,  because  of  their  technical  nature. 
Enough  has  been  said,  however,  to  give  a  general  idea  of 
the  homestead,  its  purpose  and  effect. 

When  we  find  a  judgment  against  a  party  having  a  home- 
stead, we  cannot  ignore  that  judgment,  because 

1st:     They  may  not  actually  have  been  residing  on  the  property  at 
the  time  of  the  filing  of  the  declaration  of  homestead. 

42 


2nd:  There  may  have  been  executed  by  the  same  party  a  declara- 
tion of  homestead  in  some  other  part  of  the  State  of  California, 
which  would  make  this  one  invalid. 

3rd:  There  may  have  been  a  mis-statement  in  the  declaration  as  to 
the  value,  or  as  to  ownership  of  the  property,  or  any  such 
mistake  as  would  invalidate  the  declaration. 

A  single  person,  or  widow  or  a  widower  may  execute  a  valid 
homestead  provided  he  or  she  is  what  is  termed  "the  head  of 
a  family."  A  single  person  may  file  a  declaration  of  home- 
stead when  he  has  living  with  him  on  the  premises  a  minor 
child  or  a  grandmother  or  grandfather,  or  a  minor  brother 
or  sister,  or,  in  fact,  almost  any  family  relationship  or  any 
person  dependent  mentally  or  physically  upon  the  applicant 
for  support,  provided  the  declaration  is  for  the  purpose  of 
protecting  such  dependents. 

The  law  requires  that  when  one  spouse  dies,  the  administra- 
tor or  executor  must,  if  there  is  homestead  property,  notify 
within  thirty  days  the  holder  of  any  mortgage  or  trust  deed 
lien  against  such  property  that  it  is  necessary  for  him  to  file 
his  claim  in  Court  within  the  specified  time.  The  Court 
may,  if  it  deems  best,  have  such  claim  or  lien  satisfied  out 
of  other  property  of  the  decedent  and  leave  the  homestead 
intact. 

Moving  from  the  homestead  property  to  another  property 
does  not  destroy  the  homestead,  and  the  parties  still  have  the 
homestead  to  which  they  may  return. 


43 


Powers  of  Attorney 

It  is  possible  for  one  person  to  delegate  to  another  the  power 
to  perform  certain  lawful  acts  for  the  benefit  of  the  one  con- 
ferring the  power.  Such  an  instrument,  vesting  in  one  party 
the  power  to  perform  an  act  for  another,  is  usually  termed 
a  "Power  of  Attorney." 

And  when  said  power  is  to  be  used  for  the  purpose  of  sell- 
ing, conveying,  incumbering  or  otherwise  disposing  of  real 
property  it  is  executed  with  all  the  formality  of  a  deed,  and 
to  be  entitled  to  record,  must  be  acknowledged  in  the  same 
manner. 

Prior  to  April  3,  1863,  a  married  woman  could  not  make  a 
power  of  attorney.  By  an  act  of  that  date  she  was  authorized 
to  make  a  power  of  attorney  provided  her  husband  joined 
with  her  in  it.  (Stats.  1863,  p.  165)  The  act  referred  to  vali- 
dated all  powers  of  attorney  previously  made  if  duly  exe- 
cuted by  the  wife  and  husband. 

Since  January  1,  1873,  a  married  woman  can  execute  a 
power  of  attorney  without  her  husband  joining  therein. 
(2966  C.  C.) 

Great  care  should  be  exercised  to  determine  that  the  power 
authorizes  the  specific  act  done  by  the  attorney-in-fact,  for 
"when  the,  authority  is  given  partly  in  general  and  partly  in 
specific  terms,  the  general  authority  gives  no  higher  powers 
than  those  specifically  mentioned."  (2321  C.  C.) 

In  construing  powers  of  attorney,  the  usual  rules  of  con- 
struction of  written  instruments  apply,  in  accordance  with 
which  a  power  of  attorney,  being  a  formal  instrument,  must 
be  strictly  construed  according  to  the  natural  import  of  its 
language,  and  the  authority  is  not  to  be  extended  beyond  that 
which  is  given  in  express  terms,  or  which  is  necessary  and 
proper  to  carry  into  effect  that  which  is  expressly  given. 

While  some  powers  of  attorney  are  spoken  of  as  "general 
powers  of  attorney,"  there  is  in  reality  no  such  form  as  a 
general  power  covering  all  things.  For  instance:  An  attor- 


ney-in-fact  cannot  make  a  gift  of  his  principal's  property;  he 
cannot  convey,  mortgage  or  release,  except  for  a  valuable 
consideration;  he  cannot  convey  or  mortgage  homestead 
property;  he  cannot  deal  with  the  principal's  property  for 
his  own  benefit;  he  cannot  release  or  assign  a  mortgage  made 
by  himself  to  his  principal.  He  cannot  convey  his  prin- 
cipal's property  to  himself  or  to  any  other  person  for  his 
own  benefit;  he  cannot  mortgage  his  principal's  property  to 
himself  or  to  any  other  person  for  his  own  benefit;  he  can- 
not make  a  partition,  nor  can  he  execute  an  abandonment  of 
homestead. 

If  a  power  of  attorney  is  made  by  two  or  more  persons,  it 
should  state  whether  the  power  is  joint  or  several,  or  whether 
both  joint  and  several. 

A  power  of  attorney  by  two  or  more  persons  may  not 
authorize  a  conveyance,  mortgage,  assignment  or  release  of 
the  joint  property  of  the  principals,  unless  it  is  so  expressly 
provided  in  the  power,  except  the  makers  be  husband  and 
wife.  (50  Cal.  77) 

A  power  to  several  attorneys  in  fact,  with  full  power  of 
substitution,  does  not  authorize  one  of  them  to  act.  If  an 
attorney  in  fact,  under  such  a  power,  does  substitute  another 
in  his  place,  such  substitution  probably  terminates  the  origi- 
nal attorney's  powers,  and  prevents  him  from  acting  further, 
even  upon  the  revocation  of  the  substitution. 

The  power  to  sell  is  not  a  power  to  convey.  (76  Cal.  616) 
Unless  the  power  of  an  agent  is  coupled  with  an  interest  in 
the  subject  of  the  agency,  it  is  terminated  as  to  every  person 
having  notice  thereof  by: 

Its  revocation  by  the  principal; 
The  death  of  the  principal ;  or 

The  incapacity  of  the  principal  to  contract.     (2C.  J.  556 
C.  C.) 

Before  acting  on  the  power  of  attorney,  therefore,  is  is  nec- 
essary to  know  the  full  terms  of  the  instrument,  the  authority 
given  therein  for  the  attorney  to  act,  and  an  examination  of 

45 


the  records  must  be  made  to  determine  whether  there  has 
been  a  revocation  of  the  authority  or  if  there  exists  any  con- 
dition that  would  terminate  the  power. 

To  execute  any  instrument  affecting  real  property  under 
power  of  attorney,  the  power  of  attorney  must  be  of  record, 
or  should  at  least  be  recorded  at  the  same  time  the  instru- 
ment executed  by  the  attorney  in  fact  is  recorded. 


46 


Acknowledgments 

It  must  be  remembered  that  the  laws  governing  acknowledg- 
ments of  instruments  affecting  real  property  have  been 
changed  from  time  to  time,  and  that  they  were  not  always 
so  simple  as  they  are  today ;  that  at  different  times  there  have 
been  different  requirements.  Especially  is  this  true  when  it 
comes  to  the  acknowledgments  of  execution  by  a  wife. 

Prior  to  January  1,  1873,  the  wife's  acknowledgment  had  to 
be  taken  separately  and  apart  from,  and  without  the  hearing 
of,  her  husband.  From  January  1,  1873,  to  July  1, 1891,  the 
certificate  of  acknowledgment  of  an  instrument  by  a  married 
woman  must  set  forth  that  in  addition  to  the  essentials  of 
the  general  form  of  acknowledgment,  that  upon  examination 
without  the  hearing  of  her  husband,  she  was  made  acquainted 
with  the  contents  of  the  instrument,  and  that  she  does  not 
wish  to  retract  such  execution. 

On  July  1,  1891,  the  amendment  abolishing  the  separate 
examination  of  a  married  woman  took  effect,  and  on  and 
after  that  date  the  present  general  form  of  acknowledgment 
by  the  wife  is  sufficient. 

For  your  benefit  and  guidance,  there  is  included  herewith 
forms  of  acknowledgment  for  different  purposes,  as  now  in 
use  in  California,  and  under  our  California  form. 

1st:     Acknowledgment  by  individuals. 
2nd:   Acknowledgment  by  corporations. 
3rd:     Acknowledgment  by  attorneys-in-fact. 
4th:    Acknowledgment  by  subscribing  witnesses. 
5th:    Acknowledgment  by  executors,  administrators,  guardians  and 
trustees. 

In  order  to  understand  thoroughly  the  instruments  in  our 
hands  and  to  be  able  to  talk  intelligently  on  them,  it  is  nec- 
essary that  you  become  acquainted  with  the  requisites  to  the 
making  of  a  good  instrument.  You  have  heretofore  been 
told  that  to  entitle  an  instrument  to  be  recorded  in  the  office 
of  the  County  Recorder,  the  instrument  must  be  duly 
acknowledged. 

47 


Forms  of  Acknowledgment 

The  various  forms  of  certificates  of  acknowledgment  are: 


General  Form  (1189  C.  C.) 


State  of 
County  of 


On   the day  of in   the  year ,  before  me    (here 

insert    the   name   and   quality    of   the   officer)    personally    appeared 

known  to  me     (or  proven  to  me  on 

the  oath  of )  to  be  the  person  whose  name  is  subscribed  to 

the  within  instrument,  and  acknowledged  to  me  that  he    (or  she) 
(or  they)  executed  the  same. 


Notary  Public  in  and  for  the  County  of State  of. 


For  Married  Women  from  January  1,  1873,  to 
January  1,  1891 


State  of... 
County  of. 


On  this day  of in  the  year  of  one  thousand  eight 

hundred before  me, ,  a  Notary  Public  in  and  for  the 

County   of State   of residing   therein,   duly   commissioned 

and  sworn  personally  appeared known  to  me  to  be  the  person 

described  in,  whose  name  is  subscribed  to,  and  who  executed  the 
within  instrument  described  therein  as  a  married  woman,  and  upon 
examination  without  the  hearing  of  her  husband,  I  made  her 
acquainted  with  the  contents  of  the  said  instrument  and  thereupon 
she  acknowledged  to  me  that  she  executed  the  same,  and  that  she 
does  not  wish  to  retract  such  execution. 

IN   WITNESS  WHEREOF,   I   have    hereunto   set   my   hand   and 

official  seal  at  my  office  in  the  County  of the  day  and  year  in 

this  certificate  first  above  written. 


Notary  Public  in  and  for  the  County  of ,  State  of. 

48 


Corporation  Form  (1190  C.  C.) 

Same  as  general  form  except  the  officer  must  certify  "personally 

appeared known    to    me    to    be    the    President   and , 

known  to  me  to  be  the  Secretary  of  the  corporation  that  executed  the 
within  instrument,  and  acknowledged  to  me  that  such  corporation 
executed  the  same." 

Where,  however,  the  instrument  is  executed  on  behalf  of  the  cor- 
poration by  any  person  other  than  the  President  and  Secretary,  the 
certificate  of  Acknowledgment  must  say:  "known  to  me  (or  proved 

to  me  on  the  oath  of )   to  be  the  person  who  executed  the 

within  instrument  on  behalf  of  the  corporation  therein  named  and 
acknowledged  to  me  that  such  corporation  executed  the  same." 


Attorney-in-Fact 


State  of . . . 
County  of. 


On  this day  of ,  in  the  year ,  before  me    (here 

insert    the   name   and    quality   of   the    officer)    personally   appeared 

,  known  to  me,   (or  proved  to  me  on  the  oath  of ) 

to  be  the  person  whose  name  is  subscribed  to  the  within  instrument 

as  the  attorney-in-f act  of ,  and  acknowledged  to  me  that  he 

subscribed   the   name   of thereto   as   principal,   and  his   own 

name  as  attorney-in-fact. 

Corporation  as  Attorney-in-Fact 

"Personally  appeared ,  known  to  me  to  be  the  President 

and known  to  me  to  be  the Secretary  of ,  the 

corporation  that  executed  the  within  instrument  as  the  attorney-in- 
fact  of ,  and  acknowledged  to  me  that  they  subscribed  the 

name  of thereto  as  principal,  and  the  name  of  said  corporation 

thereto  as  his  attorney  in  fact,  and  that  said  corporation  executed  said 
instrument  as  the  attorney  in  fact  of  said " 

Proof  by  Subscribing  Witness 

State  of \ 

County  of )    s 

On  this day  of in  the  year  of  our  Lord  one  thousand 

nine  hundred  and before  me ,  a  Notary  Public  in  and 

for  said   County    of ,    State   of ,   residing   therein,   duly 

commissioned    and   sworn,   personally   appeared personally 

known  to  me  to  be  the  same  person  whose  name  is  subscribed  to  the 

49 


foregoing   instrument,  as  a   witness  thereto,  who  being  by   me  duly 

sworn  deposes  and  says,  that,  .he  resides  in that,  .he  was  present 

on  the day  of 192 and  saw personally  known 

to  him  to  be  the  same  person described  m  and  who  executed  the 

foregoing  instrument,  as part ....  thereto,  sign,  seal,  and  deliver 

the  same;  and  that  the  said duly  acknowledged  to  the  said 

affiant,  that he executed  the  same,  and  that  he,  the  said  affiant, 

thereupon  at. ..  .request,  subscribed  h....name  as  a  witness  thereto, 
and  I  further  certify  that  the  said  affidavit  was  satisfactory  proof  to 
me  of  the  facts  therein  contained. 

IN  WITNESS  WHEREOF,  I  have  hereunto  set  my  hand  and  affixed 
my  official  seal  the  day  and  year  in  this  certificate  first  above  written. 


Notary  Public  in  and  for  the  County  of ,  State  of 

The  foregoing  forms  of  acknowledgment  are  not  absolutely 
essential  in  all  cases,  as  the  law  describes  further  means  by 
which  an  acknowledgment  may  be  taken.  For  instance,  a 
certificate  of  acknowledgment  by  a  Justice  of  the  Peace  is 
good  in  the  county  in  which  he  was  elected  as  Justice,  but 
when  the  acknowledgment  is  for  use  in  any  other  county  than 
the  one  in  which  he  was  elected,  such  acknowledgment  must 
be  accompanied  by  a  Clerk's  certificate  showing  his  author- 
ity to  act. 

The  general  form  of  acknowledgment  is  sufficient  for  a  Trust 
Deed,  Sheriff,  Administrator,  Executor  or  Guardian,  pro- 
vided his  official  title  is  clearly  set  forth  in  connection  with 
the  name,  so  that  it  appears  that  the  party  acknowledging  is 
doing  so  in  his  official  capacity. 

A  certificate  of  acknowledgment  from  a  foreign  country  or 
from  another  state  by  an  officer  authorized  by  the  laws  of 
this  state  to  take  such  acknowledgment  under  his  seal,  is 
good  if  it  conforms  to  the  requirements  of  the  form  of  this 
state.  If  it  does  not  so  conform,  but  is  in  conformity  with 
the  laws  of  the  jurisdiction  of  the  officer,  a  certificate  of  a 
Clerk  of  the  Court  or  record  should  accompany  the  certifi- 
cate of  acknowledgment. 

While  our  state  permits  acknowledgments  to  be  taken  by  a 
subscribing  witness,  an  introduction  by  responsible  parties 

50 


is  not  sufficient  and  does  not  relieve  the  notary  from  liability, 
unless  he  protects  himself  by  using  the  subscribing  witness 
form. 

Where  the  party  signing  the  instrument  is  absent  from  the 
state,  it  is  possible  to  prove  the  handwriting  by  a  competent 
witness  acquainted  with  the  party  and  with  the  handwriting, 
such  acknowledgment  must  be  taken  in  that  form.  This  is 
seldom  done,  because  of  the  danger  of  mistake  and  fraud, 
and  is  not  generally  looked  upon  with  favor. 

From  time  to  time  there  have  been  passed  what  are  termed 
Curative  Acts,  to  cure  defects  in  acknowledgments  of  instru- 
ments of  record.  The  Curative  Act  (1207  C.  C.)  cures  all 
defects  of  certificates  of  acknowledgment  of  all  instruments 
affecting  real  property,  which  were  recorded  in  the  proper 
book  prior  to  January  1,  1921,  for  the  benefit  of  subsequent 
purchasers  and  incumbrancers  only,  except  that  it  does  not 
cover  defects  in  acknowledgments  of  instruments  affecting 
homesteads  nor  by  married  women,  except  as  herein  stated. 
The  amendments  of  1915,  1919  and  1921  say  "including  any 
instrument  executed  by  a  married  woman  on  or  after  the  1st 
of  July,  1891."  This  latter  provision  has  never  been  before 
the  Supreme  Court,  so  its  effect  is  still  doubtful. 

The  laws  of  California  provide  that  the  person  whose 
acknowledgment  is  being  taken  must  personally  appear 
before  the  notary;  must  be  personally  known  to  him;  and 
must  personally  acknowledge  that  he  executed  the  instru- 
ment. These  are  absolute  requirements,  and  a  notary  who 
takes  an  acknowledgment  under  any  other  conditions,  and 
using  the  general  form  of  acnowledgment,  does  so  at  his 
peril.  You  should  not,  therefore,  introduce  any  person  to  a 
notary  with  whom  you  are  not  sufficiently  well  acquainted  to 
be  absolutely  certain  as  to  his  identity,  as  a  notary  taking 
such  acknowledgment  on  the  general  form  would  be  held 
responsible  for  any  loss  which  might  occur  through  relying 
upon  your  introduction. 


51 


Torrens  System 

The  first  so-called  Torrens  law  in  this  state  was  passed  in 
1897.  That  act  remained  on  the  statute  books  practically 
unused  until  1914,  when  the  present  so-called  Torrens  law 
was  passed  by  initiative,  or  direct  vote  of  the  people.  That 
act  became  a  law  in  1914,  since  which  time  there  have  been 
a  considerable  number  of  properties  placed  under  the  system 
— not  many  as  compared  with  all  of  the  titles,  but  still  a 
considerable  number. 

The  main  points  necessary  to  register  a  title  could,  perhaps, 
be  explained  best  by  saying  that  it  is  necessary  to  make 
application  to  the  Court  to  place  the  title  under  that  system. 
That  application  is  made  by  the  owner  or  one  acting  in  his 
behalf,  and  it  must  allege  that  the  applicant  or  those  whom 
he  represents  are  the  owners  of  the  property,  that  he  and  his 
predecessors  have  been  in  possession  of  the  property  for  five 
years  last  past,  that  they  have  paid  the  taxes  for  the  last  five 
years,  and  the  application  must  set  up  the  correct  incum- 
brances  against  the  property,  together  with  the  names  of  the 
parties  holding  those  incumbrances,  and  the  addresses  of 
such  parties. 

When  the  application  is  filed,  it  acts  as  a  lis  pendent,  or 
notice  of  a  pending  action.  It  has  the  same  effect  as  a  lis 
pendens  in  a  suit  for  foreclosure  of  a  mortgage.  It  is  notice 
of  pendency  of  the  action,  and  after  that  time  anyone  filing 
an  instrument  in  the  office  of  the  County  Recorder  is  pre- 
sumed to  have  had  notice  of  that  application.  Any  instru- 
ment, according  to  the  terms  of  the  act,  thereafter  filed  in  the 
office  of  the  County  Recorder,  is  of  no  value  or  effect  as  to 
the  property  described  in  the  application. 

When  the  Court  has  been  satisfied  as  to  the  sufficiency  of  the 
application  it  issues  an  order  directing  all  parties  referred 
to  in  the  application  to  appear  in  Court  and  answer  and 
defend  any  claims  they  have  in  or  against  the  property 
being  registered. 

52 


Notice  must  also  be  published  for  four  consecutive  weeks  in 
a  newspaper  of  general  circulation.  Notice  must  also  be 
served  on  all  of  the  adjoining  property  owners. 

There  is  apparently  no  provision  which  requires  that  anyone 
holding  a  mortgage  or  trust  deed  against  the  property  be 
personally  notified,  yet  the  decree,  when  entered,  purports 
to  determine  the  interests  of  all  of  those  parties,  and  if  they 
are  left  out  of  the  decree  and  do  not  make  their  appeal  within 
the  one  year  provided  by  the  law,  they  are  supposed,  under 
the  terms  of  the  act,  to  lose  their  lien. 

After  the  case  comes  to  trial  and  a  hearing  is  had,  a  decree 
is  entered  by  the  Court,  which  decree  is  filed  with  the  Regis- 
trar, who,  in  this  county,  is  the  same  person  as  the  County 
Recorder.  He,  thereupon,  issues  a  so-called  Torrens 
Certificate. 

The  original  certificate  remains  in  his  files.  A  duplicate 
copy  thereof  is  issued  by  him  and  delivered,  the  law  says,  to 
the  owner  of  the  property.  Thereafter  no  instrument  can  be 
recorded  by  the  voluntary  action  of  the  owner  or  the  mort- 
gagee, unless  that  duplicate  copy  of  the  certificate  is  pre- 
sented to  the  Recorder,  with  the  instrument  that  is  to  be  filed 
in  the  Torrens  file. 

If  the  duplicate  copy  of  the  certificate  is  handed  to  the  mort- 
gagee, he  holds  absolutely  the  only  evidence  that  the  owner 
of  the  property  has  as  to  his  ownership  in  case  the  records  in 
the  Recorder's  office  should  be  destroyed  by  fire  or  otherwise. 
There  is  no  copy  of  his  deed  to  him  recorded  according  to 
the  provisions  of  the  act,  and  there  is  no  evidence  of  the 
Certificate  of  Title,  other  than  the  original  filed  in  the 
Recorder's  file,  and  the  duplicate  copy  which  he  holds.  At 
the  same  time,  if  this  duplicate  copy  is  not  handed  to  the 
mortgagee,  the  mortgagee  has  nothing  in  his  possession  to 
show  his  lien  on  the  property.  The  registered  mortgage  is 
not  filed  for  record  in  the  office  of  the  County  Recorder 
under  the  terms  of  the  act,  but  is  filed  as  an  instrument  in 
the  Torrens  file. 

53 


If  the  owner  holds  the  duplicate  copy  of  the  certificate,  the 
mortgagee  has  no  evidence  in  his  hands.  If  the  owner  gives 
the  duplicate  copy  of  the  certificate  to  the  mortgagee,  the 
owner  has  no  evidence. 

Under  the  present  system,  they  have  the  recorded  deed  and 
the  recorded  mortgage,  respectively,  as  evidence  of  their 
rights  in  the  property,  even  though  the  public  records  have 
been  destroyed. 

The  Torrens  Certificate  purports  to  show  the  way  the  title 
is  vested.  It  purports  to  guarantee  the  title  and  to  be  backed 
by  an  insurance  fund  in  the  hands  of  the  State  Treasurer,  to 
give  protection  to  the  holders  of  Torrens  Certificates.  That 
fund  is  made  up  of  a  small  percentage  of  the  fees  charged 
for  the  registration  of  Torrens  Titles,  it  being  one  tenth  of 
one  percent  of  the  assessed  valuation  of  the  property  so 
registered. 

The  Torrens  Certificate  purports  to  give  the  condition  of  the 
title  except  as  to  matters  specifically  referred  to  as  excep- 
tions. For  instance,  the  first  exception  is :  Any  lease,  verbal 
or  otherwise,  for  a  period  not  to  exceed  one  year;  also  cer- 
tain easements  or  exceptions  for  highway  purposes  are  not 
covered  by  the  certificate;  also  any  right-of-way  or  other 
easement  created  within  one  year  before  the  issuance  of  the 
certificate  is  not  covered  by  the  certificate;  also  any  taxes  or 
special  assessments  for  which  a  sale  of  the  land  has  not  been 
had  at  the  date  of  the  certificate;  also  any  liens,  claims  or 
rights  arising  under  bankruptcy  acts  or  otherwise  arising 
under  the  laws  of  the  United  States,  which  cannot  be  required 
to  be  shown  in  the  state  records,  and  also  any  local  taxes  or 
state  taxes  are  not  covered  by  the  certificate,  nor  corporation 
license  taxes  or  franchise  taxes.  Judgments  are  covered  by 
the  Torrens  Title  only  provided  they  are  filed  in  the  Torrens 
records.  Instruments  offered  for  filing  under  the  Torrens 
system  shall  contain: 

1st:     A  statement  that  the  instrument  so  offered   for  filing  is  on 
registered  land; 

2nd:    It  must  give  the  name  of  the  registered  owner; 
3rd:    The  number  of  the  last  certificate  of  registration; 

54 


4th:  Name,  address,  post  office  address  of  every  person  who  acquires 
or  claims  an  interest  under  such  incumbrahce;  and 

5th:  The  duplicate  certificate  must  accompany  the  instrument  to  be 
registered. 

If  the  owner  sells  the  property,  he  must  have  the  copy  of  the 
certificate.  If  the  mortgagee  assigns  the  mortgage,  he  must 
have  the  copy;  and  if  the  copy  of  the  certificate  should 
chance  to  be  in  a  safe-deposit  box,  and  the  mortgagee  away, 
it  would  be  necessary  to  go  into  Court  and  petition  the  Court 
to  issue  a  new  duplicate  copy,  after  explaining  to  the  Court 
the  failure  to  produce  the  original  copy  of  the  certificate. 

If  a  woman  changes  her  name,  by  getting  married  or  other- 
wise, it  is  necessary  for  her  to  petition  the  Court,  after  a 
proper  hearing,  to  issue  a  new  certificate  in  her  new  name. 
There  is  no  legal  requirement  for  notifying  the  mortgagee, 
but  if  it  is  done,  he  must  employ  his  own  counsel  or  attorney 
to  see  that  his  own  rights  are  protected,  for  there  have  been 
several  instances  already  where  the  mortgagee  has  failed  en- 
tirely to  have  the  mortgage  entered  under  the  Torrens  system, 
and  there  are  some  instances  where  the  applicant  has  errone- 
ously given  the  amount  of  the  mortgage,  or  has  omitted  it,  as 
the  case  may  be,  and  the  Registrar  has  issued  the  certificate 
in  accordance  with  that  decree.  The  decree  is  supposed  to 
be  final  after  the  expiration  of  one  year. 
We  are  interested  in  this  system,  so  far  as  this  booklet  is  con- 
cerned, only  in  understanding  the  main  feature  of  the  law  as 
it  affects  our  handling  of  escrows.  Your  instructions  should 
clearly  state  in  the  case  of  a  mortgage  on  registered  land, 
to  whom  the  duplicate  registered  copy  is  to  be  delivered. 
The  same  custom  should  be  followed  as  is  followed  in  instru- 
ments recorded  in  the  Recorder's  office.  The  duplicate  Tor- 
rens Certificate  should  be  delivered  to  the  mortgagee  along 
with  the  fire  insurance  policies  and  the  note.  We  do  not 
handle  in  escrow  any  deal  on  property  which  is  under  the 
Torrens  System,  unless  in  conjunction  with  that  deal  we 
issue  our  policy  of  Title  Insurance. 

The  regular  form  of  Guarantee,  based  upon  record,  cannot 
be  issued,  because  there  is  no  record  under  the  Torrens  law. 
The  Torrens  law  says  that  instruments  filed  for  record  in  the 

55 


County  Recorder's  office  are  not  notice  to  anyone  after  the 
application  to  place  the  property  under  the  Torrens  system 
has  been  filed. 

As  we  cannot  rely  upon  the  Torrens  system  to  furnish  ade- 
quate protection  to  the  parties,  it  is  necessary  for  us  to  see 
that  the  recording  laws  are  complied  with,  and  that  the  chain 
of  title  is  complete  under  the  old  system  of  recording. 

We  then,  in  addition  thereto,  examine  fully  the  proceedings 
had  in  the  Torrens  case,  and  if  we  find  that  all  of  the  parties 
interested  in  the  property,  and  having  claims  of  record,  have 
properly  been  made  parties  to  the  action,  and  have  been 
properly  served  and  have  properly  had  their  day  in  Court, 
we  are  then  in  a  position  to  issue  our  policy  of  Title 
Insurance. 

But  if  the  decree  differs  from  the  way  we  find  the  title,  then 
we  cannot  rely  upon  the  Torrens  decree  alone. 

Application  to  place  the  title  under  the  Torrens  system  may 
be  withdrawn  up  to  the  time  of  the  issuance  of  the  final 
decree  of  the  Court.  If  that  decree  has  been  entered,  how- 
ever, there  is  nothing  left  but  the  formality  of  the  Registrar 
issuing  his  certificate  in  accordance  with  the  decree  and  after 
that  decree  has  been  entered,  the  law  makes  no  provision  for 
withdrawal. 

Furthermore,  the  state  leglislative  bodies  cannot  pass  such  a 
law,  nor  amend  the  act,  because  the  system  was  placed  on  the 
statute  books  by  the  direct  vote  of  the  people  through  the 
initiative  process  and  can  be  amended  only  in  a  similiar 
manner. 


56 


Building  Loans 

Building  loans  are  those  made  in  contemplation  of  the  erec- 
tion of  a  building  or  buildings  on  the  property  described  in 
the  mortgage  or  trust  deed  given  to  secure  the  loan. 

Whenever  a  building  is  to  be  constructed,  or  is  in  the  course 
of  construction,  Mechanic's  Lien  Laws  and  their  effects  must 
be  considered. 

The  purpose  of  the  lien  law,  as  you  have  already  seen,  is  to 
give  to  the  parties  entitled  thereto  a  direct  lien  upon  that 
property  of  the  owner  upon  which  the  building  is  to  be 
erected.  Such  liens  are  not  limited  as  to  the  amount,  except 
as  to  the  contractor,  by  any  contract  price. 

An  attempt  is  made  to  give  the  owner  some  protection  by 
providing  that  he  may  file  in  the  office  of  the  County 
Recorder,  before  the  work  is  commenced,  the  original  con- 
tract, together  with  the  bond  of  the  contractor  in  a  sum  not 
less  than  50  %  of  the  whole  contract  price,  guaranteeing  the 
proper  performance  of  the  contract,  and  conditioned  that  it 
shall  be  liable  for  payment  in  full  of  the  claims  of  all  per- 
sons performing  labor  or  furnishing  material  thereunder. 

If  the  contract  is  so  filed,  and  the  bond  is  so  filed,  then  the 
total  amount  that  may  be  recovered  by  lien  claimants  is 
limited  to  the  amount  due  from  the  owner  to  the  contractor, 
if  the  court  shall  find  it  equitable  to  do  so. 

All  contracts  should  provide  that  definite  payments  shall  be 
made  in  installments  as  the  work  progresses,  and  that  at 
least  25  %  of  the  contract  price  shall  be  reserved  for  thirty- 
five  days  after  the  filing  of  the  notice  of  completion  to  pro- 
tect lien  claimants. 

It  is  clear  that  the  responsibility  of  passing  on  the  suffic- 
iency of  the  contracts  should  be  no  part  of  the  escrow- 
holder's  duty,  and  likewise  the  escrow-holder  should  not  be 
expected  to  pass  on  the  sufficiency  of  the  bonds  nor  the 
sureties.  The  escrow-holder's  duty  should  be  confined  to 
the  fulfillment  of  the  terms  of  the  escrow.  The  instructions 

57 


to  this  end  should  be  plain,  simple  and  explicit  to  pay 
certain  moneys  to  certain  parties  at  certain  specified  times 
on  the  order  of  a  certain  person. 

In  addition  to  the  contractor's  bond  for  the  faithful  perform- 
ance of  the  details  of  the  contract,  it  should  also  be  incum- 
bent upon  him  to  furnish  what  is  commonly  called  "Em- 
ployer's Liability  Insurance,"  for  if  anyone  is  killed  or 
injured  through  his  employment  on  the  building,  the  Com- 
pensation Insurance  Act  provides  that  he  or  his  heirs  shall 
have  a  lien  against  the  property  for  the  amount  due  him 
under  the  terms  of  the  act,  unless  employer's  liability  insur- 
ance is  carried,  and  if  such  insurance  is  carried,  the  injured 
employee  or  his  heirs  must  look  to  the  insurance  company 
for  compensation. 

It  should  be  the  endeavor  of  the  escrow-holder  in  connection 
either  with  a  new  mortgage,  trust  deed  or  a  conveyance  of 
property  through  escrow  to  give  to  the  customer  all  of  the 
protection  possible,  but  it  is  also  important  that  the  customer 
be  made  acquainted  with  the  limitations  to  the  protection 
that  can  be  offered  by  the  escrow-holder. 

To  handle  a  building  loan  escrow  requires  concentrated 
thought  and  attention,  as  well  as  intelligent  understanding 
of  the  law  and  of  the  conditions  surrounding  the  property 
in  escrow.  To  cover  many  of  the  points  involved,  special 
blanks  have  been  prepared  for  this  particular  kind  of  escrow. 
These  blanks  should  without  exception  be  used. 

Without  here  going  fully  into  the  many  provisions  of  the  me- 
chanic's lien  laws,  there  are  certain  conclusions  to  be  drawn 
therefrom,  with  which  you  should  acquaint  yourselves  and 
which  should  be  carefully  observed. 

If  a  building  contract  is  filed,  or  is  known  to  exist,  or  if  a 
building  has  but  recently  been  erected  upon  the  premises, 
it  is  evident  that  precaution  must  be  taken  against  the  pos- 
sibility of  mechanic's  liens. 

Where  the  building  contract  is  filed  prior  to  the  furnishing 
of  any  labor  or  material  on  the  premises,  the  final  payment 

58 


can  ordinarily  be  safely  made  on  the  expiration  of  thirty- 
five  days  after  the  filing  of  notice  of  completion,  providing 
there  is  taken  from  the  general  contractor  a  receipt  in  full 
and  a  release  from  him  of  all  claims  against  the  premises. 

If  no  building  contract  is  filed,  but  a  notice  of  completion  is 
filed,  the  final  payment  cannot  safely  be  made  until  sixty- 
one  days  after  the  filing  of  notice  of  completion,  as  there 
would  be  no  way  of  determining  who  might  be  the  original 
contractor. 

If  neither  contract  nor  notice  of  completion  is  filed,  the  final 
payment  cannot  safely  be  made  until  the  full  ninety  days 
after  the  actual  completion  of  the  building,  and  the  time  of 
such  actual  completion  being  a  question  of  facts  solely,  must 
be  clearly  established  and  agreed  on  by  the  parties  to  the 
escrow,  and  clearly  set  forth  in  the  instructions. 

A  notice  of  completion,  to  be  valid,  must  be  signed  by  the 
proper  person  authorized  by  the  law  to  do  so,  and  must  be 
filed  in  the  office  of  the  County  Recorder  within  ten  days 
after  the  actual  completion  and  acceptance  of  the  building. 
The  length  of  time  that  the  final  payment  is  to  be  held  in 
escrow  must,  of  course,  be  agreed  on  between  the  parties, 
but  they  should  have  the  benefit  of  such  information  as  you 
can  give  them. 

Where  a  loan  is  made  in  contemplation  of  the  erection  of  a 
building,  it  is  essential  also  to  obtain  in  connection  with  the 
escrow  instructions,  a  statement  as  to  the  approximate  cost 
of  the  building.  Then  after  ascertaining  the  amount  of  the 
loan,  it  will  be  apparent  whether  the  loan  will  probably  be 
enough  to  cover  the  full  cost  of  the  building.  If  it  is  not, 
it  may  be  desired  to  have  the  mortagor  advance  enough  of 
his  own  funds  toward  the  cost  of  the  building  to  make  up  the 
necessary  amount  when  added  to  the  loan  money  to  pay  for 
the  building  in  full,  and  it  may  be  advisable  that  the  owner's 
money  be  expended  before  using  the  proceeds  of  the  loan. 
In  any  case  where  it  is  found  that  there  is  a  building  con- 
tract in  existence,  whether  same  be  recorded  or  not,  a  receipt 
in  full,  together  with  his  release  of  the  premises  should  be 

59 


obtained  from  the  contractor,  prior  to  making  the  last  pay- 
ment, provided  for  in  the  escrow,  and  the  instructions  of  the 
mortgagee  and  mortgagor  should  so  state. 

A  building  loan  escrow  that  is  made  in  contemplation  of  a 
building  to  be  erected  on  the  premises  should  provide  also 
that  no  material  shall  be  placed  on  the  premises  nor  labor 
performed  prior  to  the  recording  of  the  mortgage  and  to  the 
placing  of  the  money  to  the  account  of  the  mortgagor. 
Instructions  should  also  provide  that  after  the  mortgage  has 
been  recorded  the  mortgagee,  or  some  agent  by  him  desig- 
nated for  the  purpose,  and  agreed  upon  in  the  instructions, 
shall  notify  the  escrow-holder  that  he  has  examined  the 
premises  after  the  recording  of  the  mortgage,  and  has  satis- 
fied himself  that  up  to  the  time  of  the  recording  of  the  mort- 
gage no  labor  had  been  furnished  nor  material  delivered 
on  the  premises. 

It  is  seldom  that  two  building  loan  transactions  are  identical 
in  all  of  their  details.  It  is  therefore  obvious  that  it  is 
impossible  to  prepare  any  printed  form  with  specific  word- 
ing which  will  be  applicable  in  every  case. 

However,  if  you  will  keep  in  mind  the  several  points  in  the 
foregoing  discussion,  you  should  be  able  to  successfully  pre- 
pare your  instructions  in  such  form  as  to  make  it  clear  that 
all  parties  understand  the  limitations  to  the  protection  that 
can  be  afforded  them  and  that  they  understand  clearly  the 
duties  and  obligations  that  they  must  perform  and  assume 
in  carrying  out  their  part  of  the  escrow. 


60 


Usury 

At  the  present  time  we  have  on  our  statute  books  the  so- 
called  "Usury  Law."  The  main  features  only  with  which  we 
will  have  to  deal  in  the  handling  of  escrows  will  be  con- 
sidered here. 

No  person  or  corporation  can  receive  a  higher  rate  of  inter- 
est, either  in  moneys  or  in  property,  than  12  per  cent  per 
year. 

When  the  contract  upon  its  face  expressly  provides  for  the 
payment  of  usurious  interest,  the  stipulation  therein  for  in- 
terest is  void,  but  the  obligation  of  the  payment  of  the  prin- 
cipal sum,  and  that  only,  is  valid. 

If  usurious  interest  is  received  (whether  under  a  written 
contract  expressly  providing  for  same,  or  otherwise),  the 
one  who  receives  the  usurious  interest  cannot  recover  a 
judgment  for  the  interest  at  all,  nor  can  he  recover  on  the 
principal  debt  until  the  due  date  thereof  as  fixed  and  deter- 
mined by  the  contract. 

Interest  upon  any  written  contract  to  pay  money  shall  not 
be  compounded  nor  shall  the  interest  thereon  be  construed 
to  bear  interest  unless  an  agreement  to  that  effect  is  clearly 
expressed  in  writing  and  signed  by  the  parties  to  be  charged 
therewith. 

Any  person  or  corporation  who  receives  usurious  interest, 
whether  as  a  principal  or  as  an  agent  for  another,  may  be 
subjected  to  a  judgment  at  the  instance  of  the  one  who  paid 
the  same,  for  a  penalty  of  three  times  the  amount  of  usurious 
interest  so  paid  and  received. 

Any  person  or  corporation,  whether  as  a  principal  or  as  an 
agent  for  another,  that  demands  or  receives  more  than  12 
per  cent  per  annum  as  interest  when  the  same  is  secured  by 
mortgage,  trust  deed,  bill  of  sale,  assignment,  pledge,  receipt, 
or  other  evidence  of  title  (except  corporation  bonds  and 
municipal  and  other  public  bonds)  upon  property,  real  or 
personal,  or  by  assignment  of  wages,  is  guilty  of  misde- 

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meanor,  and  may  be  punished  for  a  first  offense  with  a  fine 
not  less  than  $25.00,  nor  more  than  $300.00,  or  (if  the  one 
convicted  is  an  individual)  by  imprisonment  of  not  more 
than  six  months,  or  both  such  fine  and  imprisonment;  and 
for  every  subsequent  offense  and  conviction,  by  a  fine  not 
less  than  $100.00,  nor  more  than  $500.00,  and  (if  the  one 
convicted  is  an  individual)  by  imprisonment  of  not  less  than 
six  months  nor  more  than  one  year. 

Any  person  or  corporation  that,  whether  as  principal  or  as 
agent,  receives  or  charges  more  than  the  amount  equal  to  5 
per  cent  of  the  amount  loaned  and  secured  in  all  sums  of 
$1,000.00  or  less,  and  3  per  cent  on  all  sums  over  $1,000.00 
in  full  for  all  examinations,  views,  first  appraisals,  com- 
missions, renewals,  made  within  one  year  of  the  date  of  the 
loan,  and  charges  of  any  kind  or  description  (except 
abstracts  and  certificates  of  title  which  may  be  made  under 
the  Torrens  Land  Law  or  otherwise)  in  procuring,  making, 
and  transacting  all  business  connected  with  such  loans,  is 
guilty  of  a  misdemeanor,  and  is  subject  to  the  penalties  as 
above  described. 

Any  person  or  corporation,  whether  as  principal  or  agent, 
that  demands  or  receives  any  favor,  bonus,  or  commission 
whatsoever  for  the  use  or  loan,  or  the  procuring  of  such 
loan,  of  any  sum  of  money  for  less  than  six  months,  when 
such  loan  is  not  secured  upon  a  trust  deed  or  mortgage 
on  real  estate,  is  guilty  of  a  misdemeanor  and  subject  to 
the  penalties  as  above  described. 

Any  person  or  corporation,  whether  as  principal  or  agent, 
that  compounds  interest  upon  a  written  obligation,  unless 
an  agreement  to  that  effect  is  clearly  expressed  in  writing 
and  signed  by  the  parties  to  be  charged  therein,  is  guilty 
of  a  misdemeanor,  and  subject  to  the  penalties  as  above 
set  forth. 

Everyone  taking  in  or  handling  an  escrow  in  which  a  loan 
is  involved  should  be  particularly  careful  that  it  is  not 
such  a  transaction  as  should  fall  within  the  meaning  of 

62 


the  so-called  "Usury  Law."  It  is,  therefore,  particularly 
essential  that  all  of  the  proceeds  of  the  loan  be  accounted 
for  legitimately,  and  that  the  instructions  show  clearly  that 
no  portions  of  the  proceeds  of  a  loan  over  and  above 
that  permitted  by  law  should  be  paid  to  any  person  other 
than  the  ones  lawfully  entitled  to  the  same.  No  part  of 
the  proceeds  of  the  loan  should  be  diverted  in  any  manner 
that  might  be  interpreted  as  an  evasive  guise  to  defeat 
the  purpose  of  the  law,  as  in  all  such  matters  you  should 
use  every  care,  see  that  the  transaction  is  legitimate,  and 
that  the  people  understand  what  they  are  doing.  This 
is  an  instance  where  the  escrow-holder  must  go  beyond 
the  record  and  must  be  in  a  position  to  show  that  he  has 
used  every  care  to  protect  himself  and  the  customer  with 
whom  he  is  dealing  from  the  results  of  the  penalties 
imposed  by  the  law. 


63 


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